Originally Posted by
SBQ
I think it's a loop hole. ANY time you can deduct 1 source of income from an unrelated expense like mortgage interest is a loophole.
As for allowing mortgage interest expense to apply on the personal primary resident home? In the USA, there are limited on how much one can deduct this expense off their personal 'taxable income'. HOWEVER, like Australia & Canada, the USA has Capital Gains Tax on the sale of any home including their primary residence home. How is this fair in the NZ perspective when landlords after 5 years, can sell their asset (the house) for 100% tax free capital gain?
Again I applaud what Jacinda is doing. Ever since I came to NZ, it didn't seem fair how the majority of wealth in NZ has come from the backs of rising house prices. The term 'Negative Gearing' too was something I had to learn as it's never allowed in Canada and as I mentioned in other threads, the issue of leveraging is a problem.
Let me explain the distinction of other business ventures. When a company or small business closes up, ANY assets that have appreciated in value is taxed on the gain. Likewise with disposing depreciated assets like vehicles. The residual value too is taxed. On the asset side of the balance sheet, such as inventory is also taxed. So tell my why is it that an individual can own multiple homes rented out, can end up paying NO tax on the capital gain after 5 or 10 or 20 years??? Because this certainly is not the case in a small business.
But above all, here are the startling stats that got me off the chair in Jacinda's announcement:
1) by year end of 2020, 40% of ALL houses purchases was made by those who already owned multiple properties. (meaning, there's no way a 1st home buyer can compete. Buyers of houses for the sole purpose of renting out and investing will always pay more)
2) and from June to Nov 2020, the level of mortgage borrowing by these 'property investors' had increased by 116%. (no surprise here with record low mortgage rates, I saw as low as 2% last year)
3) From 1991 to 2019, NZ experienced the HIGHEST real growth of housing prices in the OECD !!! (Yes higher than places like Vancouver Canada and my friends are crying there)
4) Since last year, 15,000 houses were purchased by people who ALREADY owned 5 (FIVE) or more houses !!!
If you ask me, all these people owning multiple houses deserve it. They pushed up house prices so fast to unprecedented levels that any current gov't had to pull the levers.
and if you think the 'use' of house is complex in NZ. Look at Canada. If you rent a portion of your primary resident home out (ie basement, spare bedroom etc). Then the tax laws states THAT % proportion of the home is no longer counted towards tax free capital gain from that time onward. So people rent the whole basement out which can account to 50% of the proportion size of the home which means at time of sale in the long term future ; 50% of the capital gain becomes income taxable (off your principle resident home). What i'm saying is that the gov't of NZ has many options to do and can go down the path like Canada has done.