Relief that key points abandoned

Property investors are only partly relieved that the Prime Minister has ruled out some of the more dramatic recommendations of the tax working group.

John Key has ruled out a land tax, a "comprehensive" capital gains tax and the "risk-free return method" (RFRM).

However, he hinted strongly that the Budget will tackle a gap in the tax system around property investments, "where income is being derived" but which did not pay tax.

Mr Key stayed silent on other options such as doing away with depreciation on buildings, LAQCs or a specific capital gains tax on rental property.

"It could have been worse, depending on what sort of tax he has in mind," the Capital Property Investors' Association's president, Alistair Gillespie, said.

Professor Bob Hargreaves, director of Massey University's real estate analysis unit, said a lot of property owners would be "breathing a sigh of relief", but the heat was still on landlords.

He thought Mr Key's "gap" probably referred to the loophole which allowed business people to offset rental property losses against other income. One option was "ring-fence" the losses only against future rental profits.

However, Andrew King, vice-president of the Property Investors' Federation, warned both ring-fencing and RFRM would erode property prices and raise rents.

Mr King said he was disappointed Mr Key had reinforced an impression that property investors were not paying tax.

The reference to 2008, when property investors filed $500 million worth of losses, was an anomaly, due to high interest rates that had happened only twice in 28 years, he said.

- © Fairfax NZ News