Depreciation still the crucial question

Commercial  property investors have kept up the pressure on the Government to continue to allow depreciation on commercial buildings.

In his speech yesterday Prime Minister John Key did not rule out ending the ability for property investors to claim tax breaks for depreciation on their buildings.

Property Council of New Zealand chief executive Connal Townsend said the tax working group and the Government had been vague about whether disallowing depreciation should apply to commercial buildings, which had led to a fall in the value of share portfolios. Commercial properties did depreciate and any attempt to remove depreciation on non-residential property would put New Zealand at a competitive disadvantage to other countries, Mr Townsend said.

Commercial property was the infrastructure of business.

"The Government must resist the temptation to apply a blanket approach to all forms of property.

"Any change to New Zealand's tax system must not result, either intentionally or otherwise, in an increase in the cost of doing business," Mr Townsend said.

Council president Chris Gudgeon said all other OECD countries and New Zealand's major trading partners differentiated between residential and commercial property for deductibility of depreciation rules.

AMP Capital Investors head of property investment Anthony Beverley said the huge amount of money invested in residential property that was not paying tax was "a real concern".

The tax working group had focused on residential investors claiming depreciation on buildings.

"But the unintended consequence is that if that same rule is applied to non-residential buildings, then that is going to have a huge impact on business."

The Property Council of New Zealand said about 80 per cent of non residential property was owner-occupied businesses. Disallowing depreciation would bring an effective 2 per cent tax increase on business.

Mr Beverley said that would be contrary to the objectives of the tax reforms to create a business-friendly environment with growth prospects.

Market values of listed property trusts had fallen about 5 per cent since the tax working group made its recommendations.