Tenants will feel tax pain

ROBERT CHARLES/Taranaki Daily News

PASSING THE BUCK: Brad Horton says renters will pay more for their homes if the government increases property tax.

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Tenants will pay for any tax changes that increase their landlords' costs, say two New Plymouth property investors.

In a much-anticipated speech to Parliament yesterday, Prime Minister John Key said his Government was investigating increasing GST to 15 per cent and changing the way property was taxed.

The details will be revealed in the May Budget but having ruled out a land tax, capital gains tax and a flat tax on equity Mr Key indicated he planned to end the tax breaks landlords are currently able to gain through depreciation.

New Plymouth businessman and property investor Brad Horton said any such change would result in higher rents.

"It would be a shame to lose the depreciation in rental property investments because the chattels in your investment do depreciate and you should be entitled to claim. It will definitely result in higher rents though by how much will depend on how much more tax landlords will have to pay."

Mr Horton speculated the tax could be as much as 19.5 per cent and rents would have to increase accordingly.

Such a tax would also make residential property less attractive as a form of investment he said. "Property investors will lose 10 to 20 per cent of their equity probably because people won't want to buy it any more. It takes the sweetness out of it," he said.

New Plymouth man Gavin McDonald owns several rental properties with his wife and said a tax increase for investors would drive rents up and also stagnate property prices.

"It means people may be scared off investing in rental properties and people with two or three properties may decide to get out of the rental business. That means there will be less people buying and competition among buyers is what keeps house prices increasing," he said.

Property Investment Federation president Martin Evans said such a change to the deprecation tax loophole would be unfair to residential property investors.

His organisation would recommend investors stop maintaining their properties, increase rents as much as possible and sell up if holding on to the property proved unsustainable, he said.

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