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Will The Government Add GST To Rents And Mortgages?

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Contributor:
Brian Dalley
Brian Dalley

Will the Government add GST to rents and mortgages to help reduce the current deficit?

A real possibility I believe. After all debt reduction isn’t taxed.

When saving you are taxed on the return of your investment but on the other side of the scale when you are paying down debt, you are subtracting from the liability column and adding to the asset column therefore increasing wealth without paying tax.

I have been singing that tune for many years now and if you check out recent Blogs more so in recent months. Don’t save as it is taxed, pay down your debt first. Think about it.

You have a mortgage with an interest rate of 7% and money in a savings account earning you 5% [ lucky you ]. The bank in theory is loaning your own money back to you at a higher rate and the government is taxing you on the interest you receive on the savings. A little like trying to fend off a dozen or so ninja warriors, hence the reason for preaching debt reduction.

So is it going to be another tax on what in theory is already taxed?

Yes and No, guess it just depends on what side of the table you are sitting. But isn’t it always.

Let’s look at the mortgage first: you have a $300,000 mortgage and pay it off in ten years. Even after costs you would expect your net worth to have increased in value so is it fair to expect that gain to be exempt from tax when people that are making the funds available for you to borrow the money, are taxed on their investment?

GST on rents: I can hear the outcry already, why are we being taxed; shouldn’t it be on the Investor that owns the property? The same applies, there normally are opposing views.

The investor is supplying a valuable service [housing] so there should be benefits for doing so, however there are areas for improvement. And yes they are being looked at as I write this Blog.

Will any changes put people off from investing in property?

Maybe those that do it solely for tax benefits but for the others, the majority that do it for a retirement plan, I don’t think so.

As for the taxing of rents: it would be political suicide if implemented now. For example someone paying $400 a week in rent would see and increase of $60 per week.

That’s 15% I hear you say, not 12.5%. Whoops did I say that out loud.

So what does the Government do, forget it all together, trust me that is not going to happen.

Another angle is capital gains tax which the investor already pays but the average home owner has managed to keep that under the radar. There was a task force put in place a year or so to look into this but I haven’t heard anything since.

Until now they haven’t been looking behind that door. Sorry, it is now wide open.

I can see the headlines now, just can’t make out the date;

“Government abolishes capital gains tax and replaces it with GST”

GST will be now payable on all property transactions.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.  You can read more of his views and opinions on his website www.propertyprofit.co.nz
 

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