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Top 10 Tax Changes Since 2004

In 2006, Mark Withers, partner at Withers Tsang, published Property Tax, A New Zealand Investor’s Guide. He’s currently revising it and says every chapter has needed a major overhaul, so wide-ranging have been the tax changes over the past decade. He has helped compile a list of the top 10 tax changes since 2004:

By: Mark Withers

1 May 2016

  1. The rise and fall of the lossattributing qualifying company regime. The LAQC was many a property investor’s best friend, allowing losses from a property to be offset against an individual income return.
  2. The removal of the ability to depreciate residential buildings. The 2011 removal of building depreciation threw out a lot of cashflow calculations and altered buying criteria for many an investor.
  3. LVR restrictions imposed by the Reserve Bank have had a significant impact across the property sector, particularly the re-write on the interpretation of tax residency. These are contributing to an investment shift away from Auckland.
  4. The bright-line test, now in place to determine whether tax needs to be paid on the gains from the sale of a residential property.
  5. Tax rates have changed. Personal income tax rates and company tax rates have reduced, while trust tax rates have been aligned with the top personal income rates: “This has reduced the motivation to use trusts.” In the first increase since 1989, GST went from 12.5% to 15% in 2010 and land transactions are now zerorated for GST.
  6. Inland Revenue started to focus on property investment and taxavoiding transactions. The property compliance team, introduced in 2010, targets noncompliance in the property sector. The IR clamped down on transactions or structures designed to circumvent tax avoidance. “You can’t be seen to be entering a transaction purely to avoid tax.”
  7. The associated persons test, which shifted the boundary between capital gains and taxable income on rental properties.
  8. The introduction of mix-use asset rules. This has had an impact on anyone who rents out a holiday home – before 2013 the expenditure on the holiday home was deductible even when it sat empty, but now only the expenditure related to the income-earning use of the asset is deductible.
  9. The introduction of the PIE regime, which created a new way to tax portfolio investment entities.
  10. The repeal of gift duty. Though estate duty was effectively abolished in 1992, it took until 2011 before gift duty was repealed.

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