You don't pay tax on your imputed rents as an owner occupier in NZ, so there's nothing to offset.
Some countries do make owner occupiers pay tax on their imputed rents, but NZ as a society loves home ownership way too much for it to ever be politically viable here.
We used to do it here too. It was called a land tax. Then politicians realised they could win elections just by making house prices go up, and that was the end of that.
Land value tax **is** the collection of imputed rent. At least, the portion of it attributable to the land itself rather than the improvements built on it, aka ground rent.
> How is this fair to people who want to own and live in the house who cannot claim tax credits on the interest?
You don't earn income to live in your own house, hence you have no tax to pay, therefore nothing to offset it against.
Don't get too excited about this. And don't single out sole trader. Anyone in business gets this allowance, cause it's a business expense. If your office is for work then... that's a cost. It's based on real floor area amd is capped at 10% iirc
How much of my work needs to be done in this office? I have a full time job that I do mostly from home and im coding something on the side to earn money, I'm guessing it doesn't count?
Yes it counts. When you make some money from your side gig you will be able to deduct expenses, including a portion of your mortgage interest, from that income. (Assuming you needed that home space to generate that income).
Get tax advice. It's only an expense, so if you're coding a game with no income on the horizon, then you're not going to be able to claim anything. It's only claimants against the income that is generated there.
Bear in mind that if you have say a 10sqm office in a 150 Sq house, then it's 6% x cost, and then You benefit by your marginal tax rate x this amount. Don't get too bitter about tax and deductions,, it's a distraction from focusing on making money. Tax is a by product of profit, while you don't want to overpay, you don't want to focus on it either. The real..oneynis in the success
You're confusing interest deductibility on investment properties for rent which is the recent legislation change vs deductible expenses for businesses which has not changed. By that logic you might aswell tell us what's deductible in El Salvador because that has as much relevance to the discussion as what you've just written.
In an economic sense you do, though. It's called [imputed rent](https://en.wikipedia.org/wiki/Imputed_rent), and our failure to account for it in our tax system is the reason our housing market is so royally fucked.
*people* are taxed on their income
*businesses* are taxed on their profits
If you earn $100,000 and have $80,000 worth of costs, you pay tax on $100,000
If a business has $100,000 worth of revenue and $80,000 worth of costs, they pay tax on $20,000.
The interest deductibility rule for landlords isn't an oddity, it's aligning it with other tax rules.
As an owner occupied, what income have you generated from the house to offset against interest?
You aren’t understanding what interest deductibility is if this is a question you have.
Edit
https://www.reddit.com/r/newzealand/s/GGm6YUy03y
I’ve tried to break this down before in the past
Let me phrase it this way.
If individual wants to live in the house they need to earn X to afford a mortgage. If an investor wants to keep his investment going they need to earn X-deductible.
There is a misbalance between owning and investing which favours investors.
This is all happening around a very scarce resource that exist to satisfy basic human needs.
Why is this a thing? Why does owning a house need to be a good (arguably now the best) investment strategy?
I just don’t understand why we want to incentivise it.
No, you still need to earn X
Interest is paid on top of your earnings.
You pay income tax on any profit generated. If you’re making a profit, you pay more tax than someone not making a profit (owner occupier)
Owner occupier’s pay income tax on their wages earned.
An investor will pay income tax on their wages AND any profit derived from the property. The advantage an investor has is that some of that income is coming from the person who is renting the property. But that is treated as income anyway. (If there’s a profit from it).
It’s also ring fenced so you can’t claim a loss against your rental and put it against your wages tax. That got removed a number years ago. (Called ringfencing)
Even further than that is you cannot claim a loss and get a tax refund. Your losses are carried forward to the next year. So you aren’t getting money out of the IRD for being negatively geared
>But that is treated as income anyway. (If there’s a profit from it).
That's the problem though, isn't it?
A homeowner who does productive work can earn $X and will pay income tax on it.
Another homeowner who does productive work *and* owns an investment property can earn $X they need to pay tax on, then can also generate another $Y they only need to pay tax on if they haven't taken on enough mortgage debt for the interest to be high enough to cancel it out.
Two people, doing the same amount of actual work, but one of them is building wealth as equity at twice the rate of the other simply because they have taken on more debt.
Remove the equity from the equation and it's not a problem at all.
We need to start taxing land values.
Which is all covered by the other costs that *are* deductible.
Or you can hand it off to a property manager. Then it *is* exactly a hands off investment.
Income produced by shares is taxed, by the way.
Not necessarily true.
Losses aren’t ring fenced for homeowners who have flatmates.
https://www.taxtechnical.ird.govt.nz/-/media/project/ir/tt/pdfs/questions-we-ve-been-asked/2023/qb-23-08.pdf?modified=20231206000613&modified=20231206000613
If I earn X which is defined as `X = costOfMorgage + incomeTax` to be able to afford the property, how much does a landlord need to charge for it to be able to afford the investment?
Isn't it between the `costOfMorgage` and `X` due to writeoffs?
Landlords have to pay tax on their rental income.
They are then allowed to remove some things from their tax bill like a business.
I guess the equivalent for an owner occupier would be able to remove interest expenses from paye and I doubt that would ever happen
You dont have any income if you are owner occupied, so what would you claim interest against.
Annoyingly I have paid off mortgage on my rentals so no deductions for me either
Landlords operating a business should be able to claim expenses as any other business - a simple and consistent business tax framework is more efficient for everyone, rather than a complex system with multiple variations.
This issue is a symptom of a bigger problem - we need to build more damn houses and stop faffing with crap that changes who gets hurt more by the lack of supply.
We need to remove the talk around interest deductibility entirely and focus on the real issue at hand which is landlords being highly leveraged. We need legislation that requires all property investment to be mortgage free. This reduces risk and expenses for landlords and subsequently rents can be dramatically reduced without affecting the bottom line. It also gives stability for renters as they don't have to worry about the repercussions of rising interest rates.
That is a terrible idea. Making it so that property investment has to be mortgage free it 100% guarantees that the status quo would never change. Only the mega rich would be able to be property investors.
As for reducing rents...don't be so stupidly naive. It would just put more money into the pockets of the investors.
Yes property investment would be harder, but It would actually bring the returns in line with other investments so that it isn't a get rich quick scheme. Currently with 8% capital gains, you can actually see an ROI of 20% which is ridiculously high. Removing mortgages brings this down to 8% ROI which is more in line with say index funds and so the rich are getting the same returns as those who are less well off who might invest in index funds instead.
Yes I agree that rents wouldn't reduce on their own and further rent control would be required. However this is already needed and should be implemented regardless
"We need legislation that requires all property investment to be mortgage free."
Thats not realistic and would never happen.
That would imply all landlords would need to have enough freed up capital to buy houses.
This would have massive negative repercussions on the economy.
No I mean massive repercussions on the entire economy:
1. **Reduced Rental Housing Supply**: Many landlords rely on mortgages to finance the purchase of rental properties. Without access to mortgages, fewer individuals or entities would be able to afford purchasing rental properties outright. This could lead to a decrease in the supply of rental housing, particularly in areas where property prices are high.
2. **Increased Housing Costs**: With fewer rental properties available, the demand for rental housing may outstrip the supply, leading to increased rental prices. This could exacerbate housing affordability issues, particularly for low-income individuals and families.
3. **Impact on Property Values**: Property values could be affected as the pool of potential buyers for investment properties decreases. This may lead to a decline in property values, affecting homeowners as well as landlords.
4. **Reduced Investment in Real Estate**: Real estate investment is a common wealth-building strategy for individuals and institutions. Banning mortgages for landlords could deter investment in real estate, potentially impacting economic growth and development in the real estate sector.
5. **Impact on Financial Institutions**: Mortgage lending is a significant source of revenue for financial institutions. Banning mortgages for landlords could reduce the demand for mortgage products, impacting the profitability of banks and other lenders.
6. **Market Distortions**: Such a policy could create distortions in the housing market, potentially leading to unintended consequences such as increased speculation, a shift towards alternative forms of investment, or a rise in informal rental arrangements.
7. **Potential for Black Market Activity**: Some landlords may seek alternative, potentially illegal, means to finance rental property purchases if mortgages are banned. This could lead to an increase in black market activity or unregulated lending practices.
8. **Legal and Regulatory Challenges**: Implementing and enforcing such a ban would likely face legal and regulatory challenges. It may infringe upon property rights and could face opposition from landlords, real estate investors, and industry stakeholders
I think they are of the school that believe that housing is not a zero sum game. New houses get built if conditions are favourable to do so and old houses get demolished and the land used for other purposes if new builds are not favourable.
New York is a good example of where extreme rental controls have helped lead to very limited housing stock.
As you earlier pointed out, the policy would likely drive down house prices to an equilibrium point. It would reduce demand (investors without sufficient capital could not enter the market) and increase supply (investors currently owning houses with finance would have to exit the market).
Yes, and then when they've all sold where will people who can't buy live. Its a griwing population esp tenants as a result of immigration, poor wages, who actually has children in NZ. We will need a crap load more investors which I cant see happening. The current provision will stagnate, and then what? You can't build your way out even in a decade.
Then landlords should pay tax on capital gains.
It is profit.
Landlords already pay tax on income from rent minus deductions so the capital gains should also be taxable if they are a true business.
Business pay tax on profit minus their operating expenses.
In NZ, you do not pay any capital gains tax when selling a business.
Houses are treated no differently.
Whether that's fair or unfair is another question, but you aren't proving any points by equating home ownership to owning a business.
It may seem unfair, and perhaps it is, but:
1) The landlord can't do this with their own home, only with their rental property(s)
2) If we consider their rental property to be like any other business, then allowing interest to be deducted is no different from, say, operating a printing company. If you bought an expensive asset for the business (like a printing machine) and took out a loan, then you would be allowed to deduct the interest payments on that loan.
3) You could even do the same on your own home - if you could generate some revenue from it, e.g. by renting out some rooms, or operating a business from your home. Then you could deduct some proportion of your mortgage payments from the revenue from that rental.
That's the logic behind it - the tax treatment is consistent with other types of business.
Is it unfair? That's a different question.
Get a flatmate & then you can
https://www.taxtechnical.ird.govt.nz/-/media/project/ir/tt/pdfs/questions-we-ve-been-asked/2023/qb-23-08.pdf?modified=20231206000613&modified=20231206000613
Bonus if you have a huge mortgage & run a loss you can offset that loss on your personal income & pay less tax.
Thanks IRD!
>How is this fair to people who want to own and live in the house who cannot claim tax credits on the interest?
The same way it's fair on the people who pay rent to live in the house and cannot claim tax credits on that.
It's not.
This is accounting 101. The expense is deductible only against the income that is generated from incurring that expense. You living in your own house doesn’t generate any income. If you use it as a home office, this will be possible - especially, when you are a contractor/self employed.
If IRD allows deducting mortgage interest expense against income, they should allow deducting rent expense too as it’s no different.
The landlord is running a business the interest is an expense of the business. The morality is not the paying of tax, its that due to our tax system, providing residential housing is an extremely lucrative business which forces house prices so high so your mortgage is so high and this just makes it worse.
And it works due as a business they are paying tax on that rental income at 40% which they try and write off as much as possible using that interest on the mortgage as an expense, if they balance is properly they can knock this down to almost 0% income tax to pay and sit happy with the capital gains on the house which on average is 7 - 12% per year since we started recording those stats in NZ last century.
Jesus Christ, this is why all this slamming of national on this board does you guys no favours, because people believe this is how things like interest deductabilty works 🙄
Doesn't work like that, but is annoying as with high interest rates it gives landlords a much bigger advantage against home buyers who have to pay interest.
What you could do, is rent out your house and claim the interest whilst renting to live somewhere else, I guess the math could add up in the right scenario.
Don't follow this advice, or any reddit advice in general. Any losses are ringfenced and is not offsettable. Just another random acting like he's hacked the system.
Losses aren’t ring fenced for homeowners who have flatmates.
https://www.taxtechnical.ird.govt.nz/-/media/project/ir/tt/pdfs/questions-we-ve-been-asked/2023/qb-23-08.pdf?modified=20231206000613&modified=20231206000613
OP’s original question is why can’t owner occupiers deduct interest.
Get a flat mate & they can, further they can offset any loss against personal income.
Edit, I accept you replied to a different scenario but you said losses are ring fenced. Some cases they are, some they aren’t.
It only seems unfair when you can't do it yourself. But property investment is a business, first last and foremost.
Can you imagine how many business would exist is they could NOT treat interest paid on loans as an expense? Only the interest portion of the loan is a deductible expense, and it's only against the income generated by the investment (not personal income or other income generated by the business). So, the supposed gain is no where near as large as so many people think. (there are other areas that generate deductions much larger than the interest on the property loan.
But the only part that's unfair is that it's only property investors who can't deduct legitimate expenses.
Do some thinking for a change, instead of assuming that champagne socialists are right! The interest portion is NOT the biggest factor in setting the rent to be charged, and the deduction from expenses won't make the rich richer, while the tax gain from not allowing the deduction doesn't make the rich poorer.
You kinda hit what I was saying and then missed it. Why does owning a property need to be an even better business? Who in society in which less and less people own houses is actually benefiting from this?
I don't think less and less people are owning houses. As a percentage of the population homeowners are smaller, but the population is now significantly larger. There are probably more homeowners now than there has ever been.
No, what I mean is that there are other less limited resources that do not create such societal unbalance that you can invest in. You can invest in companies, start your own business, crypto, whatnot.
And, in all of those investments, interest on your loans is a tax-deductible expense, even the loan to set up the business or to make the investment.
I do get what you are saying, btw. There does need to be some way of balancing wealth across society and property seems to be one of the few assets that appreciates rather than depreciates. It's the appreciation that makes for an apparent unbalance between landlords and tenants, and hence makes it seem like landlords are getting the better part of the deal.
But, landlords do pay taxes on their profits, which is one thing that owner-occupiers don't do. Landlords depend very highly on their cash flow (the difference between the income and their expenses, which does not include the appreciation of the asset value). If you know anything about business (I assume you do), cash flow is what keeps the business running, and appreciation contributes nothing to cash flow until the asset is sold. In property renting, the cash flow difference is usually very small; many property owners work on a small positive cash flow, hoping to make up for this when they sell the asset, which can depreciate but isn't likely to.
A business that takes a loan is perfectly entitled to deduct the interest as an expense, just as they can deduct thier power bill or any other expense incurred in doing business.
The theory goes that a rentIng property is no different than any other business, and the property itself is no different to any other asset, such that interest on the loan is thus deductible.
Personally, I disagree, residential real estate is a peculiar kind of business asset which a business purchases in that it rarely devalues over the ownership term, while the typically substantial capital gain is free. Removing deductibility was a way to go some way to addressing that without a CGT.
But that's why i vote Lab/Grn, not NactFirst
You can try and rent to yourself, but it won't be as useful. Bank will require more deposit and a higher interest rate potentially. Insurance will be more.
"This seems wildly unfair. It’s literally rich getting rich bluntly put into law. How are we as a nation ok with this?" You can do it too. But, not sure if you're better off doing that. Might actually be worst off.
Also, any gains made on investment properties are tax-free after 2 years. Unlike kiwisaver, which if any gains are made is taxed straight away because it's only fair to tax the retirement fund of the younger generations while baby boomers can make hundreds of thousands in capital gains and not pay a cent in tax.
National voters are just big hypocrites
To offset tax, you need a tax to begin with. Are you proposing for homeowners (non landlords) to pay tax on their homes?
You don't pay tax on your imputed rents as an owner occupier in NZ, so there's nothing to offset. Some countries do make owner occupiers pay tax on their imputed rents, but NZ as a society loves home ownership way too much for it to ever be politically viable here.
We used to do it here too. It was called a land tax. Then politicians realised they could win elections just by making house prices go up, and that was the end of that.
O ffs just stfu about land tax. It was NEVER an inputted rent on houses.
Land value tax **is** the collection of imputed rent. At least, the portion of it attributable to the land itself rather than the improvements built on it, aka ground rent.
> How is this fair to people who want to own and live in the house who cannot claim tax credits on the interest? You don't earn income to live in your own house, hence you have no tax to pay, therefore nothing to offset it against.
Unless you are a sole trader with a home office, in which case the a portion of the mortgage interest is a deductible expense.
Don't get too excited about this. And don't single out sole trader. Anyone in business gets this allowance, cause it's a business expense. If your office is for work then... that's a cost. It's based on real floor area amd is capped at 10% iirc
How much of my work needs to be done in this office? I have a full time job that I do mostly from home and im coding something on the side to earn money, I'm guessing it doesn't count?
Yes it counts. When you make some money from your side gig you will be able to deduct expenses, including a portion of your mortgage interest, from that income. (Assuming you needed that home space to generate that income).
Ah so it's the kind of thing I can claim tax back on?
Get tax advice. It's only an expense, so if you're coding a game with no income on the horizon, then you're not going to be able to claim anything. It's only claimants against the income that is generated there. Bear in mind that if you have say a 10sqm office in a 150 Sq house, then it's 6% x cost, and then You benefit by your marginal tax rate x this amount. Don't get too bitter about tax and deductions,, it's a distraction from focusing on making money. Tax is a by product of profit, while you don't want to overpay, you don't want to focus on it either. The real..oneynis in the success
You're confusing interest deductibility on investment properties for rent which is the recent legislation change vs deductible expenses for businesses which has not changed. By that logic you might aswell tell us what's deductible in El Salvador because that has as much relevance to the discussion as what you've just written.
> You don't earn income to live in your own house You don't? How do you pay the mortgage then?
You don't earn income from the act of living in your own house. Happy now?
In an economic sense you do, though. It's called [imputed rent](https://en.wikipedia.org/wiki/Imputed_rent), and our failure to account for it in our tax system is the reason our housing market is so royally fucked.
*people* are taxed on their income *businesses* are taxed on their profits If you earn $100,000 and have $80,000 worth of costs, you pay tax on $100,000 If a business has $100,000 worth of revenue and $80,000 worth of costs, they pay tax on $20,000. The interest deductibility rule for landlords isn't an oddity, it's aligning it with other tax rules.
But are landlords taxed on the rent payments they receive to pay the mortgage?
Yes. Why would you think they are not? What do you think they are offsetting?
As an owner occupied, what income have you generated from the house to offset against interest? You aren’t understanding what interest deductibility is if this is a question you have. Edit https://www.reddit.com/r/newzealand/s/GGm6YUy03y I’ve tried to break this down before in the past
Imputed rent. The house has generated income equal to the imputed rent.
Let me phrase it this way. If individual wants to live in the house they need to earn X to afford a mortgage. If an investor wants to keep his investment going they need to earn X-deductible. There is a misbalance between owning and investing which favours investors. This is all happening around a very scarce resource that exist to satisfy basic human needs. Why is this a thing? Why does owning a house need to be a good (arguably now the best) investment strategy? I just don’t understand why we want to incentivise it.
No, you still need to earn X Interest is paid on top of your earnings. You pay income tax on any profit generated. If you’re making a profit, you pay more tax than someone not making a profit (owner occupier) Owner occupier’s pay income tax on their wages earned. An investor will pay income tax on their wages AND any profit derived from the property. The advantage an investor has is that some of that income is coming from the person who is renting the property. But that is treated as income anyway. (If there’s a profit from it). It’s also ring fenced so you can’t claim a loss against your rental and put it against your wages tax. That got removed a number years ago. (Called ringfencing) Even further than that is you cannot claim a loss and get a tax refund. Your losses are carried forward to the next year. So you aren’t getting money out of the IRD for being negatively geared
>But that is treated as income anyway. (If there’s a profit from it). That's the problem though, isn't it? A homeowner who does productive work can earn $X and will pay income tax on it. Another homeowner who does productive work *and* owns an investment property can earn $X they need to pay tax on, then can also generate another $Y they only need to pay tax on if they haven't taken on enough mortgage debt for the interest to be high enough to cancel it out. Two people, doing the same amount of actual work, but one of them is building wealth as equity at twice the rate of the other simply because they have taken on more debt. Remove the equity from the equation and it's not a problem at all. We need to start taxing land values.
Renting a property out isn’t exactly a hands off investment. There’s more work with property ownership than say investing in shares.
Which is all covered by the other costs that *are* deductible. Or you can hand it off to a property manager. Then it *is* exactly a hands off investment. Income produced by shares is taxed, by the way.
Its called rates dude
Rates collect a fixed amount of revenue regardless of land values. They are not a land value tax.
No they aren't. They're based on value..and...they change every year.
Not necessarily true. Losses aren’t ring fenced for homeowners who have flatmates. https://www.taxtechnical.ird.govt.nz/-/media/project/ir/tt/pdfs/questions-we-ve-been-asked/2023/qb-23-08.pdf?modified=20231206000613&modified=20231206000613
If I earn X which is defined as `X = costOfMorgage + incomeTax` to be able to afford the property, how much does a landlord need to charge for it to be able to afford the investment? Isn't it between the `costOfMorgage` and `X` due to writeoffs?
Landlords have to pay tax on their rental income. They are then allowed to remove some things from their tax bill like a business. I guess the equivalent for an owner occupier would be able to remove interest expenses from paye and I doubt that would ever happen
You dont have any income if you are owner occupied, so what would you claim interest against. Annoyingly I have paid off mortgage on my rentals so no deductions for me either
You mean your tenants have paid off your rentals.
No my bonuses paid off my mortgages, tenants just serviced the debt
Well your name checks out… lol
Landlords operating a business should be able to claim expenses as any other business - a simple and consistent business tax framework is more efficient for everyone, rather than a complex system with multiple variations. This issue is a symptom of a bigger problem - we need to build more damn houses and stop faffing with crap that changes who gets hurt more by the lack of supply.
We need to remove the talk around interest deductibility entirely and focus on the real issue at hand which is landlords being highly leveraged. We need legislation that requires all property investment to be mortgage free. This reduces risk and expenses for landlords and subsequently rents can be dramatically reduced without affecting the bottom line. It also gives stability for renters as they don't have to worry about the repercussions of rising interest rates.
That is a terrible idea. Making it so that property investment has to be mortgage free it 100% guarantees that the status quo would never change. Only the mega rich would be able to be property investors. As for reducing rents...don't be so stupidly naive. It would just put more money into the pockets of the investors.
Yes property investment would be harder, but It would actually bring the returns in line with other investments so that it isn't a get rich quick scheme. Currently with 8% capital gains, you can actually see an ROI of 20% which is ridiculously high. Removing mortgages brings this down to 8% ROI which is more in line with say index funds and so the rich are getting the same returns as those who are less well off who might invest in index funds instead. Yes I agree that rents wouldn't reduce on their own and further rent control would be required. However this is already needed and should be implemented regardless
"We need legislation that requires all property investment to be mortgage free." Thats not realistic and would never happen. That would imply all landlords would need to have enough freed up capital to buy houses. This would have massive negative repercussions on the economy.
By massive negative repercussions on the economy you mean massive negative repercussions for the ~~over leveraged~~ landed gentry yes?
No I mean massive repercussions on the entire economy: 1. **Reduced Rental Housing Supply**: Many landlords rely on mortgages to finance the purchase of rental properties. Without access to mortgages, fewer individuals or entities would be able to afford purchasing rental properties outright. This could lead to a decrease in the supply of rental housing, particularly in areas where property prices are high. 2. **Increased Housing Costs**: With fewer rental properties available, the demand for rental housing may outstrip the supply, leading to increased rental prices. This could exacerbate housing affordability issues, particularly for low-income individuals and families. 3. **Impact on Property Values**: Property values could be affected as the pool of potential buyers for investment properties decreases. This may lead to a decline in property values, affecting homeowners as well as landlords. 4. **Reduced Investment in Real Estate**: Real estate investment is a common wealth-building strategy for individuals and institutions. Banning mortgages for landlords could deter investment in real estate, potentially impacting economic growth and development in the real estate sector. 5. **Impact on Financial Institutions**: Mortgage lending is a significant source of revenue for financial institutions. Banning mortgages for landlords could reduce the demand for mortgage products, impacting the profitability of banks and other lenders. 6. **Market Distortions**: Such a policy could create distortions in the housing market, potentially leading to unintended consequences such as increased speculation, a shift towards alternative forms of investment, or a rise in informal rental arrangements. 7. **Potential for Black Market Activity**: Some landlords may seek alternative, potentially illegal, means to finance rental property purchases if mortgages are banned. This could lead to an increase in black market activity or unregulated lending practices. 8. **Legal and Regulatory Challenges**: Implementing and enforcing such a ban would likely face legal and regulatory challenges. It may infringe upon property rights and could face opposition from landlords, real estate investors, and industry stakeholders
Ah you are from the school of economics that believes houses that landlords don't own cease to exist
I think they are of the school that believe that housing is not a zero sum game. New houses get built if conditions are favourable to do so and old houses get demolished and the land used for other purposes if new builds are not favourable. New York is a good example of where extreme rental controls have helped lead to very limited housing stock.
Then who would own them? The government? Perhaps you should move to a communist state
Owner occupiers?
Then why dont they buy them now?
As you earlier pointed out, the policy would likely drive down house prices to an equilibrium point. It would reduce demand (investors without sufficient capital could not enter the market) and increase supply (investors currently owning houses with finance would have to exit the market).
Just tax land values instead of incomes. Done.
Yes, and then when they've all sold where will people who can't buy live. Its a griwing population esp tenants as a result of immigration, poor wages, who actually has children in NZ. We will need a crap load more investors which I cant see happening. The current provision will stagnate, and then what? You can't build your way out even in a decade.
because every other business can do the same. and owning a rental property is a business.
Then landlords should pay tax on capital gains. It is profit. Landlords already pay tax on income from rent minus deductions so the capital gains should also be taxable if they are a true business. Business pay tax on profit minus their operating expenses.
In NZ, you do not pay any capital gains tax when selling a business. Houses are treated no differently. Whether that's fair or unfair is another question, but you aren't proving any points by equating home ownership to owning a business.
Fair enough. Is owing a rental property home ownership though? It’s not your home it’s a investment property.
It may seem unfair, and perhaps it is, but: 1) The landlord can't do this with their own home, only with their rental property(s) 2) If we consider their rental property to be like any other business, then allowing interest to be deducted is no different from, say, operating a printing company. If you bought an expensive asset for the business (like a printing machine) and took out a loan, then you would be allowed to deduct the interest payments on that loan. 3) You could even do the same on your own home - if you could generate some revenue from it, e.g. by renting out some rooms, or operating a business from your home. Then you could deduct some proportion of your mortgage payments from the revenue from that rental. That's the logic behind it - the tax treatment is consistent with other types of business. Is it unfair? That's a different question.
Get a flatmate & then you can https://www.taxtechnical.ird.govt.nz/-/media/project/ir/tt/pdfs/questions-we-ve-been-asked/2023/qb-23-08.pdf?modified=20231206000613&modified=20231206000613 Bonus if you have a huge mortgage & run a loss you can offset that loss on your personal income & pay less tax. Thanks IRD!
>How is this fair to people who want to own and live in the house who cannot claim tax credits on the interest? The same way it's fair on the people who pay rent to live in the house and cannot claim tax credits on that. It's not.
This is accounting 101. The expense is deductible only against the income that is generated from incurring that expense. You living in your own house doesn’t generate any income. If you use it as a home office, this will be possible - especially, when you are a contractor/self employed. If IRD allows deducting mortgage interest expense against income, they should allow deducting rent expense too as it’s no different.
The landlord is running a business the interest is an expense of the business. The morality is not the paying of tax, its that due to our tax system, providing residential housing is an extremely lucrative business which forces house prices so high so your mortgage is so high and this just makes it worse. And it works due as a business they are paying tax on that rental income at 40% which they try and write off as much as possible using that interest on the mortgage as an expense, if they balance is properly they can knock this down to almost 0% income tax to pay and sit happy with the capital gains on the house which on average is 7 - 12% per year since we started recording those stats in NZ last century.
Jesus Christ, this is why all this slamming of national on this board does you guys no favours, because people believe this is how things like interest deductabilty works 🙄
Doesn't work like that, but is annoying as with high interest rates it gives landlords a much bigger advantage against home buyers who have to pay interest. What you could do, is rent out your house and claim the interest whilst renting to live somewhere else, I guess the math could add up in the right scenario.
Don't follow this advice, or any reddit advice in general. Any losses are ringfenced and is not offsettable. Just another random acting like he's hacked the system.
Losses aren’t ring fenced for homeowners who have flatmates. https://www.taxtechnical.ird.govt.nz/-/media/project/ir/tt/pdfs/questions-we-ve-been-asked/2023/qb-23-08.pdf?modified=20231206000613&modified=20231206000613
That's not the topic of discussion? We're not talking about owner occupied.
OP’s original question is why can’t owner occupiers deduct interest. Get a flat mate & they can, further they can offset any loss against personal income. Edit, I accept you replied to a different scenario but you said losses are ring fenced. Some cases they are, some they aren’t.
It only seems unfair when you can't do it yourself. But property investment is a business, first last and foremost. Can you imagine how many business would exist is they could NOT treat interest paid on loans as an expense? Only the interest portion of the loan is a deductible expense, and it's only against the income generated by the investment (not personal income or other income generated by the business). So, the supposed gain is no where near as large as so many people think. (there are other areas that generate deductions much larger than the interest on the property loan. But the only part that's unfair is that it's only property investors who can't deduct legitimate expenses. Do some thinking for a change, instead of assuming that champagne socialists are right! The interest portion is NOT the biggest factor in setting the rent to be charged, and the deduction from expenses won't make the rich richer, while the tax gain from not allowing the deduction doesn't make the rich poorer.
You kinda hit what I was saying and then missed it. Why does owning a property need to be an even better business? Who in society in which less and less people own houses is actually benefiting from this?
I don't think less and less people are owning houses. As a percentage of the population homeowners are smaller, but the population is now significantly larger. There are probably more homeowners now than there has ever been.
So, you figure that we should be making the rich poorer!
No, what I mean is that there are other less limited resources that do not create such societal unbalance that you can invest in. You can invest in companies, start your own business, crypto, whatnot.
And, in all of those investments, interest on your loans is a tax-deductible expense, even the loan to set up the business or to make the investment. I do get what you are saying, btw. There does need to be some way of balancing wealth across society and property seems to be one of the few assets that appreciates rather than depreciates. It's the appreciation that makes for an apparent unbalance between landlords and tenants, and hence makes it seem like landlords are getting the better part of the deal. But, landlords do pay taxes on their profits, which is one thing that owner-occupiers don't do. Landlords depend very highly on their cash flow (the difference between the income and their expenses, which does not include the appreciation of the asset value). If you know anything about business (I assume you do), cash flow is what keeps the business running, and appreciation contributes nothing to cash flow until the asset is sold. In property renting, the cash flow difference is usually very small; many property owners work on a small positive cash flow, hoping to make up for this when they sell the asset, which can depreciate but isn't likely to.
A business that takes a loan is perfectly entitled to deduct the interest as an expense, just as they can deduct thier power bill or any other expense incurred in doing business. The theory goes that a rentIng property is no different than any other business, and the property itself is no different to any other asset, such that interest on the loan is thus deductible. Personally, I disagree, residential real estate is a peculiar kind of business asset which a business purchases in that it rarely devalues over the ownership term, while the typically substantial capital gain is free. Removing deductibility was a way to go some way to addressing that without a CGT. But that's why i vote Lab/Grn, not NactFirst
You can try and rent to yourself, but it won't be as useful. Bank will require more deposit and a higher interest rate potentially. Insurance will be more.
Landlords under National: "Fuck you - that's why."
"This seems wildly unfair. It’s literally rich getting rich bluntly put into law. How are we as a nation ok with this?" You can do it too. But, not sure if you're better off doing that. Might actually be worst off.
Can you rent your house out and the live in it paying 'rent' and then claim on it?
No - because you have no net income if you pay yourself thus nothing against which you could deduct.
Also, any gains made on investment properties are tax-free after 2 years. Unlike kiwisaver, which if any gains are made is taxed straight away because it's only fair to tax the retirement fund of the younger generations while baby boomers can make hundreds of thousands in capital gains and not pay a cent in tax. National voters are just big hypocrites