How much will the proposed tax changes actually affect you?
posted January 31 2010
Withers Tsang on Tax
Following the release of the tax working groups report into the potential tax changes, many clients are understandably worried about the specific impact that proposed changes will have on their personal positions.
Before you look to make wholesale changes to your affairs, be they to buy or to sell, you should look to quantify the specific impact of the changes that are being proposed as they relate to your personal circumstances.
An understanding of the actual impacts will also be useful when attempting to pass on some of the impact to tenants during rent review negotiations.
To address this, we have designed and created a model that will allow us to calculate the potential effects of...
- A decrease in the personal income tax rate to 30%
- An increase in GST to 15%
- The introduction of a land tax at half a percent.
- The removal of depreciation on buildings.
We consider these changes to be the most likely path that the government will follow.
The addition of a deemed rate of return tax on the equity that residential property investors hold in residential investment properties we see as less likely.
This is because
- The above changes are already a significant "hit" for property investors.
- If targeted at just residential property it would be grossly inequitable and unfair.
- Has the potential to dramatically affect the already fragile property market.
- Would raise taxes with no consideration to the reality that the investors are already funding genuine losses.
- Would be an extremely difficult tax regime to design given the cross collateralisation of most lending arrangements against various property, i.e. determining the equity in any given property is not as straight forward is it may seem.
- It would create a tax disincentive to build equity through debt reduction.
- The potential fall in property values could destroy the very wealth that the regime is designed to tax.
- Is largely unproven elsewhere.
- Would increase rents.
- Would be politically very unpopular.
If you would like us to make a calculation of the potential impacts on your own affairs we will be happy to produce a confidential report for you based on information drawn from your 09 accounts and tax returns.
The only additional information we would need from you is the current government valuation of the land value of any investment properties held. If this information is not readily available to you we can alternatively source the government valuations from quotable value.
Our charge for preparing the report is a total of $195 plus GST based on you owning up to three properties, and a total of $250 plus GST for 4 or more properties. This is not a cost per property but is the complete cost for the report.
If you would like to order a report please email
accountants@wt.co.nz and we will call to discuss specifics.
posted in: Finance, Accounting, Taxation
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