As you may have heard, the IRD have produced a discussion document looking to change the depreciation claims allowable to residential property investors. (Note that this adverse change is for residential property investors, not commercial investors, share investors or indeed any other investors or companies.)
The aim of the changes has clearly been signalled as a move to discourage investment in residential property towards the “productive” industries. (Since when has providing people with a home not been productive?)
There are two key proposed changes that will adversely affect residential property investors. The first is to reduce the building depreciation rate from 4% diminishing value to 2% straight line or 3% diminishing value. The second is to disallow fitout depreciation rates and include these items as part of the building, depreciated at the lowest rate.
These proposals will varying affects on different investors, however it will reduce the cashflow of all investors. The proposals could only cost some investors $10 a week per property, however other investors may lose far more than this.
To calculate how you will be personally affected by these proposals, we have produced a calculator on our website to estimate the potential costs. [[no longer available]]
In order to argue against this proposal, we need to know the degree to which property investors will be affected. To help estimate this, you can submit your results to a research program we have established to calculate the overall affect of these changes. Your personal information will not be collated. The results of your calculation will be collated with all other participants.
We encourage you to participate in this research as the more information we have the more reliable the results and the better our case.
You can (and should) also make a personal submission on the review to the IRD. Here are some points you may like to make, or you can email me at Andrew@PropertyInvestor.Info to receive a submission template which will make it even easier to have your say:
- Providing rental accommodation is productive
- Property is cyclical and there is no good reason to make long-term fundamental changes just because returns have been above average over the past few years
- Yields for rental property have been falling for a number of years making it harder to provide affordable rental accommodation
- The cost of providing accommodation will uniformly rise, putting pressure on rental prices
- The current depreciation rates were reviewed upwards 10 years ago because they did not reflect their true lifespan. What has changed to make those rates incorrect?
- Fitout items wear out faster than the main structure of the building. Consider how often a property is rewired or has a new kitchen installed compared to the lifespan of the main building. This is why the rates are higher.
- Fitout rates are already included in the IRD schedule so there is no confusion over what can and cannot be claimed.
- It is inequitable to have one rule for residential property and another for residential property.
- Tax should not be used as a tool to change how investors make investment decisions.
You can send your views on the discussion paper to:
Depreciation Review
C/-The General Manager
Policy Advice Division
Inland Revenue Department
PO Box 2198
Wellington
Or by email to policy.webmaster@ird.govt.nz
All submissions need to be received by IRD by 30th September 2004.
Regards
All the best with your investments.
Andrew King
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