Posted: 22 May 2010 10:15 AM PDT

By GREG NINNESS - Sunday Star Times

Many residential property investors will be better off when tax changes announced in the Budget take effect, according to Clyde Young, a partner in accounting firm William Buck (NZ) which has many clients with residential property portfolios.

The major change affecting property investors is that they will no longer be able to claim depreciation on buildings (with an expected life of more than 50 years) as a tax-deductible expense from April 1 next year, but will receive the benefit of lower income tax rates.

Many investors overlooked the fact they would have to repay any depreciation deductions they had claimed on an an investment property when they sold it, if the value of the building had increased since they purchased it.

"Many people forget they have to pay it back," Young said. "But over the life of the investment, they will actually be better off [under the new regime]."

Young said the financial situation of many property investors had improved over the past 18 months due to the slide in interest rates, which had substantially reduced their mortgage payments.

As a result, many investors who had previously been claiming losses from their rental properties were making a profit, so the lower income tax rates from October 1 would make them better off, even with the loss of depreciation deductions.

The residential investment sector, meanwhile, seems to have taken a collective sigh of relief that the government did not make more drastic changes to tax rules regarding property investments as many had feared, particularly the ability to offset losses against other income.

According to Inland Revenue, the total amount of taxable losses claimed from residential property investments in 2008 was about $2 billion, compared with about $1.5b in taxable income declared by investors who made a profit on their properties.

Young said he did not think the changes would have a huge impact on the rental property market.

"It's very hard to pick what the short-term impact will be, but I don't think there's going to be a mass sell-off of rental properties.

"What's happened was what was expected anyway and our clients haven't been signalling to us that they will be getting out of their rental properties if depreciation is removed."

However, Young also believes that the changes may start to attract new investors to residential property, which will be less attractive to speculators.

"Now the market will attract true investors who are chasing a yield and income rather than capital gain," he said.

"People who already have KiwiSaver and may have a bit of extra money to invest and who want a range [of investments] in their portfolio. And they'll be looking at the yield and the quality of the property."

Peter Thompson, a director of real estate agency Barfoot & Thompson, also believes the tax changes could alter the type of people investing in residential property.

"It's very early days to see what real effect it will have. I suppose in some way, those that were doing it for the wrong reasons will be penalised," he said.

People who used complicated ownership arrangements that relied on tax losses to make their investments stack up "will probably suffer for it".

"But those who are buying investment properties, whether commercial or residential, for long-term income protection, will continue to see benefits from it and they'll pay less tax on their income.

"I think you'll see a different type of investor possibly coming in.

"There will be more opportunities for those that are wanting to grow their portfolios.

"But those who were just buying properties to offset losses against personal income, well that's dried up."

Thompson did not believe the tax changes would have a dramatic effect on rents.

Barfoot & Thompson runs one of the country's largest rental management businesses and Thompson said the company had been working closely with its landlords to look at what was happening with rents.

"I think most landlords are getting a fair rental on their properties. To be honest, I don't think there will be a huge increase in rents," he said.

However, he believed that the axing of depreciation allowances could mean that the commercial property sector might take longer to recover from its recent slump.

The Budget also had a sting in its tail for property investors who did not follow the tax rules.

An extra $26.6m will be provided to Inland Revenue to boost its property transaction audit team, which looks for speculators who buy properties as quick flicks, and then fail to declare the profit as income.

Jo Doolan, a tax partner with accounting firm Ernst & Young, said the practice was still quite common, even though the property market was relatively subdued.

There were still many people buying rundown properties with the intention of selling them at a profit, or who were claiming a property had been purchased as a rental when it had never been rented out or even advertised, she said.

The IRD was expecting to claw back an extra $745m in property-related taxes as a result of the additional audit funding it was receiving, Doolan said.

More than $1B in fines are owed in Ontario

Posted By JENNIFER HAMILTON-McCHARLES The Nugget

Updated 7 hours ago

One city councillor wants North Bay to take advantage of the province's offer allowing municipalities to add unpaid parking tickets and other traffic fines to the property tax bill.

"We presume the amount of money owed to the city is a high number," said Coun. Dave Mendicino, noting the amount of traffic that travels through the Highway 17 and 11 bypass is significant.

The Ontario Association of Police Services Boards estimates more than $1 billion in fines are owed.

The province gave municipalities the authority in the fall to tack unpaid fines onto private property tax bills, however the City of North Bay has yet to implement that process.

Mendicino said he hopes the city adopts this to give it more "teeth" to make people pay up.

"Ideally municipalities should be given a lot more power to collect. I agree with putting it on individual tax bills, but the question remains how do we implement that," he said.

Since 2008, municipalities have been asking for additional powers to collect fines.

Municipalities were given the authority to collect unpaid tickets in 2002. At that time municipalities were trying to collect $485 million.

Attorney General Chris Bentley stated in a previous interview some unpaid tickets date back many years and will never be paid.

"The problem is that we send the fines out for collection, but what's left is deemed uncollectable," said North Bay Mayor Vic Fedeli.

The Highway 11/17 bypass sees international TransCanada traffic with no chance of collecting from them, he said.

"We'll be going after those we can," he said.

Fedeli expects only a small portion of North Bay residents make up the bulk of the unpaid fines for this area.

He added the unpaid fines are provincial offences and could include violations to environment, labour, natural resources and other legislation.

"I think they should have to pay their fines before their licence is renewed," he said.

jhamilton-mccharles@nugget.ca

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Planet Election Guide: Property tax hike

Posted: 22 May 2010 08:39 AM PDT

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Property Tax

Saturday, May 22, 2010

“Tax reforms likely to discourage speculators from rental property” plus 3 more

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More than $1B in fines are owed in Ontario

Posted By JENNIFER HAMILTON-McCHARLES The Nugget

Updated 7 hours ago

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