The New Zealand Property Investors’ Federation (NZPIF), along with Tenants Protection (Christchurch) and The First Home Buyers Club, presented a letter to Government requesting them to reconsider the inability to claim mortgage interest as a tax deduction for residential rental properties. Such interest is a legitimate expense of running a rental property business. Each of the three organisations involved believed that while first home buyers need help getting into the market this should not be at the expense of another party.

Our letter was an attempt to persuade Government that the denial of the mortgage interest tax deductibility would not help either tenants or first home buyers. First Home Buyers Club director Lesley Harris said that her members would have preferred to see more positive changes to assist them to gain a mortgage and secure funds for a home. Tenants Protection believed the changes would ultimately increase rents for tenants.

Reconsider Tax Rate

Upon this approach failing, our second suggestion was that NZ should follow the UK system where the tax is less severe and is at the lower tax rate of 20% rather than our income tax rates of up to 39%. This also fell on deaf ears, as has the advice received from IRD, Treasury and Ministry of Housing and Urban Development who are all recommending not to implement these changes.

In a recent survey completed by NZPIF, 90% of rental property owners said they will be affected by the tax increases. Those recently entering the market will be disproportionately affected by $4,542 per year compared to $3,140 for established investors. These increased costs ultimately either have to be paid from other sources or from the rent on the property itself.

Not A Loophole

Supporting the case put forward by the three organisations, tax experts have confirmed that mortgage interest is and always has been a legitimate tax deduction and not a loophole. A comparison would be a taxi driver who can claim running expenses for his taxi vehicle as a legitimate expense for his business. However, he cannot claim his own private family vehicle expenses. To assume that mortgage interest deductibility is a loophole adds more fuel to the fire of anti-landlord sentiment and denies those in the business of proudly supplying rental homes a legitimate tax deduction.

Although the tax increase will force some providers to sell some or all of their rental properties, the majority will be able to keep them through reluctantly increasing rental prices or reducing maintenance to help cover the increasing costs. There are approximately 527,000 rental properties, of which 85% of these are provided by private investors. In recent Housing and Urban Development documents, it was suggested that only 25% of tenants could afford to buy a house even if the value was to reduce by 10-20%. The Government will not be able to house all of these people. There definitely is a place for the private rental home provider and policies like the removal of mortgage interest tax deductibility do not make it easier. However, with each change, it is a matter of reassessing the situation and figuring out a way to make it work.