Ways to make Auckland property speculators pay fair share: Massey expert
The best way to tax property speculators in the Auckland market is to target their ability to claim back interest on mortgage payments, a tax specialist says.
Dr Deborah Russell from Massey University's School of Accountancy said she believed any tax-based response to the housing crisis should affect only speculators.
At the moment, she said, property investors were not liable for tax on the gain of any property sold, and able to claim the interest on their mortgage payments as a tax deduction.
"If those gains are untaxed, then it seems unfair for them to be able to deduct the full cost of any interest as well."
The best way of getting around that unfairness was a proportional system based on how much equity investors had in the property, Russell said.
"If a person's own investment is equal to the amount borrowed for the property, then they could get a full interest deduction," she said.
"But if the owner has put in only, say, 25 per cent of the cost price, and the bank is putting the other 75 per cent in, then the investor would only get a partial deduction of, say, half the interest expense."
There was already a precedent in tax law for this kind of "apportionment" with holiday homes, she said.
Holiday home owners can only deduct some expenses to the extent that their property is actually rented out, and shareholders in look-through companies can only claim losses to the level of their real investment in the company.
However, the Property Investors Federation, which represents landlord groups, has repeatedly said that speculators are liable for tax on their gains.
"I'm really surprised that a taxation person can get a speculator and an investor mixed up," said the federation's executive officer, Andrew King.
"One, you've got to assume that we are the problem and if we are taxed more and it's made harder for us to provide rental property for tenants, that that's going to help house prices. It's doubtful.
"And if it's speculators that she really is talking about, we would agree with her.
"They already pay tax and perhaps the IRD is not doing enough to catch people, King said.
"But it looks as if there's going to be more money in the Budget for them to do that.
"And they have been doing a pretty good job so far, actually. So we would encourage that," King said.