Housing tax advantage a myth – IRD

June 14, 2007

Inland Revenue says it is a myth that investments in housing have a tax advantage over other types of investment.

Revenue Minister Peter Dunne and IRD officials appeared before the finance select committee today and were quizzed about why people had the impression that there was some tax advantage in investments in rental housing.

Deputy Commissioner Robin Oliver was blunt: “The short answer there is none.”

Rules about expenses for deducting costs such as interest, upkeep and maintenance, as well as paying tax on income were the same for investments in shares or anything else.

Mr Oliver said the rules were tougher for housing investment than other types.

“In fact under the housing case, the capital gains boundary is brought back a bit. There are tighter rules to what is a capital gain,” Mr Oliver said.

Mr Oliver said the concern appeared to be that housing was easier to get and it was easier to get loans from the bank to invest in property.

“The concern is the level of (debt) gearing that is possible in the house market which… is a matter of the willingness of banks to be laid.

Mr English said Finance Minister Michael Cullen and Reserve Bank Governor Alan Bollard had given the impression that one of the problems fueling inflation were favourable tax laws for investment housing.

Officials and Mr Dunne hinted that people seemed more likely to abuse tax rule in housing investments saying it was an area where they picked up greater non-compliance and clawed more tax back.

The budget had allowed for $14.6 million more in spending by the IRD to crack down on housing tax laws.

“Why is there a widespread view that… housing has a tax advantage,” Mr English asked.

Mr Dunne replied that it seemed to him the belief was part of the national psyche of home ownership and it had been decided by Government to enforce current tax law and not impose new taxes on housing.

Committee chairman Shane Jones said the clear inference from Dr Bollard that part of his “woes” with housing was due to a vagueness with tax law or the way it was enforced.

“What you have told us today is that it is not true,” Mr Jones said.

NZPA

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