1493264752442 - How listed property companies pay tax

How listed property companies pay tax

The amount of tax some Stock Exchange-listed property companies pay annually may differ from other companies because of their development focus.

But tax on profits is paid either by investors who receive dividends, or the company.

Forsyth Barr analyst Jeremy Simpson said listed property tax rates can typically be between 10 per cent to 23 per cent.

“The principle is that tax on profits should be paid only once and it’s either by the company or the investors who own shares or units.
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“Ryman Healthcare distributes half its earnings and investors pay full tax on their dividends.

“But some of the other listed listed property companies don’t pay full tax because they are portfolio investment entities (PIEs).”

PIEs generally pay tax on investment income based on each investor’s tax rate, rather than the company tax rate.

A recent debate focused on the low level of tax paid by retirement villages, Ryman Healthcare, Summerset, and Metlifecare.

Simpson said he looked at the role of retirement villages in a broader way.

“I almost think of them as a public private partnership because they are the only ones building aged care beds which we badly need. No one else can afford to build them.

“If you hit them with more tax it makes it harder and puts the government and taxpayers in a more difficult position,” Simpson said.

Ryman is currently not paying tax at a company level because of its growing investment in healthcare infrastructure for the elderly.

Over the past 10 years Ryman has built more than 2000 care beds and 1000 assisted living units.

Half of Ryman’s building is centred around care provision and accordingly, tax depreciation deductions are greater because of the wear and tear in care centres that occurs daily.

In addition, Ryman is able to deduct interest costs from bank debt as all other New Zealand companies. It only incurs bank debt to fund development activities.   

A significant proportion of Ryman’s reported “paper” profits come from increases in the value of its properties as opposed to actual receipt of money. These accounting increases are not subject to tax because they are “unrealised” (the properties are not sold).

Other untaxed income relates to cash received when residents purchase a licence to occupy because retirement villages have an obligation to repay the resident or their estate when the resident vacates the unit.

At a broader level, Ryman pays significant amounts of GST on the cost of developing independent living units for residents, and also adds to the national pay-as-you-earn tax take when it creates jobs at new villages.

Since listing, Ryman has paid 50 per cent of its underlying profit as dividends to shareholders, and those dividends are subject to resident withholding tax at 33 per cent with no imputation credits. 

Ryman Healthcare was founded in Christchurch in 1984 and owns and operates 31 retirement villages in New Zealand and Australia, home to 10,000 residents, and employing 4500 staff.