Property speculators who are reaping millions of dollars from the super-heated housing market are about to feel the heat from a tough new tax crackdown.
Finance Minister Michael Cullen said Inland Revenue would get an extra $14.6 million over the next three years to strengthen property transaction audits. Speculative activity was driving up house prices and household debt levels, he said. So giving IRD more money would help it enforce the law.
Property auditing gathered $100 million between 2004 and 2006, he said and it was important for IRD to have the resources it needed.
Of the country’s 1.4 million houses, around 400,000 are owned by investors. If a landlord buys with the intention of selling, tax must be paid on any financial windfalls.
Sharon Cuzens from Inland Revenue in Wellington yesterday welcomed the boost.
“It will enable us to pursue further, in-depth investigations and education on a risk area we have been actively targeting for some years,” she said.
IRD would improve information so people were more aware of their liability, monitor major developments to ensure accurate return of sales or profits, boost research and analysis of risk areas and increase audit activity in areas of identified risk, she said.
One housing investment expert also welcomed the Budget package. Andrew King, Property Investors’ Federation vice-president, said speculators who evaded tax were taking high risks. He encouraged those people who were eligible to come clean, declare their profits and pay tax.
“It’s like playing Russian roulette if you don’t,” Mr King said. But he also criticised existing tax law, saying it had too many grey areas.
Matthew Gilligan, an Auckland chartered accountant and specialist tax and legal structures consultant, also welcomed the package, saying IRD was too poor to do its job properly and the money would help.
“They’re grossly under-resourced,” he said, citing long waiting lists for taxpayers seeking rulings and waiting for investigations to be concluded.
Mr Gilligan, whose firm has 4500 property clients investing in residential housing, called for clearer rules on housing investment tax liability. Many IRD staff were excellent but it was not uncommon for staff to change so fast that some taxpayers were dealing with three IRD staff members over one issue, he said.
“That’s not uncommon on an audit.” Nor was it unusual for a taxpayer to be given conflicting advice by various IRD staff members, Mr Gilligan said.
Greg Haddon, a Deloitte tax partner, said the $14.6 million was not nearly enough to tackle the issue.
“This extra money won’t make a big impact,” he said, and failed to address the reasons for so many people investing in housing, because they regarded it as a surer bet than other forms of investment.
IRD has already announced the success of previous crackdowns.
Two years ago, it netted just under $11 million from a campaign in the Queenstown/Otago region. Its concentrated audit blitz on developers and speculators started in March 2004 and by November 2005, it had 120 cases either under investigation or heading for prosecution.
Auckland was also a target two years ago, when IRD said it was increasing resources to hunt down speculators and developers who had kept their profits a secret.
Senior Auckland department official Richard Philp said in January 2005 that an extra $106.6 million was gathered nationally within two years on property transactions, including $52.9 million from Auckland.
The rules
* If you invest for the long term, there is no tax on money when you sell the rental property.
* But if you buy with the main aim of selling for a profit, any money you make is taxable.
First-home buyers wait for Government handout
Prospective first-home buyers hoping for help through a Government-run shared-equity scheme will have to wait a little longer.
Housing Minister Chris Carter said $1.4 million had been allocated in the Budget for work on the potential design of a such a scheme, but a pilot would not be funded until at least next year.
Mr Carter has said the most likely location for a pilot scheme is Auckland and it could involve the Government paying for a 25 per cent or 30 per cent stake in a house, effectively reducing the purchase price of a $400,000 property to about $300,000.
If the house was sold, the Government would take back its percentage share. The scheme is expected to be aimed at the lowest quartile of the housing market.
Mr Carter said the Government was keen to explore how much demand there was for a shared-equity scheme.
If the scheme “flew”, it would be introduced as part of a suite of new measures including a possible Housing Affordability Bill. “Shared equity will also be introduced at the same time as the Government seeks to increase the number of houses in the price bracket affordable to first-home buyers.”
Mr Carter yesterday also announced $43.6 million over four years for other housing initiatives.
That included $23.8 million to increase the life of the Healthy Housing programme and extend it into the Wellington region for the first time.
The programme targets overcrowded households and assists them into more appropriate housing.
The Housing Innovation Fund, which provides government assistance to local authorities and community groups to develop affordable housing, would also receive a boost of $19.8 million.
Savings on food, clothing and home supplies have enabled New Zealanders to cover a huge increase in housing costs over the past 50 years.