1492745577898 - Labour preparing policy to tackle negative gearing on rental properties

Labour preparing policy to tackle negative gearing on rental properties

Labour is preparing to release a policy tackling the practice of negative gearing, saying rich property speculators are getting even richer as a result of the current tax system.

However, the Government says it has already tightened tax rules on property, and a change to the law could be “easily circumvented”.

Negative gearing involves investors borrowing enough money against a rental investment so their mortgage payments exceed the rental income.

That creates a tax loss which they can offset against other income, like a salary, to reduce their tax bill in the short term while retaining long-term gains from the increase in their property’s value.

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Responses to written parliamentary questions received by Labour show negative gearing accounted for $149 million in offset tax for individuals in 2015.

The top 10 per cent of income earners received 40 per cent of the overall total ($60m), while the top 30 per cent of earners accounted for 73 per cent ($109m).

Labour housing spokesman Phil Twyford said the figures showed the Government needed to deal with negative gearing.

“The very rich are using these tax breaks for property speculators to get even richer…and in the process, these tax breaks are turbo-charging a speculative real estate market that is driving house prices beyond the reach of most people.”

Allowing the practice provided a major incentive for people to invest in residential property, Twyford said.

He said Labour was designing a policy specifically aimed at negative gearing, which would be released in the next couple of months.

NEGATIVE GEARING ‘NOT TAX BREAK’

In a statement, Revenue Minister Judith Collins said the negative gearing rules for properties were in line with those for other forms of investment, allowing taxpayers to offset any loss against other income.

“This is not a tax break.  It is part of the general provisions which not only tax people when they earn positive income but also allow losses to be written off against other income.”

Collins said the Government had introduced a number of changes to tighten the tax rules on property, including changes to tax deductibility, tighter compliance measures and the introduction of a bright-line test for properties bought and sold within two years.

In 2009, the Tax Working Group had considered “ring-fencing” losses from rental property investments – meaning any losses could only be offset against the same property.

However, it had received advice that similar rules in the past had been “easily circumvented”.