RSS Feed

Peter Lewis: Property and tax

Thursday, March 31, 2016

A reply to those who claim investors have a tax advantage by APIA Vice President Peter Lewis:

Consider the analogy of a Motel owner verses a Residential Landlord.

The Motel owner rents accommodation by the night.
The Landlord rents accommodation by the month or by the year.
The Motel owner is in business. As such, he is required to pay income tax on any profit (his rental income minus his costs) he makes renting out rooms. 
The Landlord is in business. As such he is required to pay tax on any profit (his rental income minus his costs)he makes renting out houses.
Both pay tax at normal income rates on this profit.
Both have no tax advantage over any other business or private homeowner.
When the motel owner finally decides he has had enough, he sells the motel land and buildings.
When the landlord decides he has had enough he sells his housing land and buildings.
In both cases, there is no tax payable on any gain in the land and buildings if he should sell them at a higher price than what he initially paid to buy them.
In both cases there is no tax deduction available should they sell the land and buildings for less than they paid to buy them. (e.g. if they bought in Tokoroa or Galatea).
However . . .
If the motel owner is in the business of developing, renovating, or buying and selling motels with the intention of making a profit then he is not in business as a motel operator, he is in the buying and selling property business.
If house owner is in the business of developing, renovating, or buying and selling houses with the intention of making a profit then he is not in business as a landlord, he is in the buying and selling property business.
In both cases, they are then liable to pay tax at normal income rates on the profit they make from buying and selling property less their expenses in doing so.
The confusion lies in identifying exactly what type business the property person is carrying out - landlording or property trading. They are both taxed, but in different ways.

Recent Posts


boarding house cgt commerce commission Must know sale and purchase landlord re agent housing affordability airbnb tenancy tribunal Jeff Bezos Editor's Choice p lab ventilation CoreLogic rent interest limitation return smoke alarm ask an expert HSWA tenant Level 4 data security television termination scotney williams water bill inspection Property (Relationships) Act subdivision property management beginner investor Case study How to buying property value Must knows rental market management positive cash flow bankruptcy interest deductibility Landlording DTI holiday house Investor story legal cost twg report warren buffett building financial advisers act rent increase rta Question and answer opes partners negotiation trademe house prices Market report education structure sale and purchas cat nzpif will mortgage trust skill shortage inflation property maintenance trespass brightline election2020 CCC Sponsored post buying rules advice unitary plan anti-social behaviour short term rental investment strategy Investment tip meth contamination yield early termination recycling equity property productivity auckland apia HHGA auckland council income government travel bubble Zodiak Management equity property apprentice ring-fencing short-term rental Standards New Zealand capital gain robert kiyosaki winz ocr insurance rental wof daikin rent control rta reform market extractor fan barfoot and thompson bond form letting khh Q&A tax banking housing bubble shower dome debt enforcement relationship letting fee asbestos LIM fixed-term tenancy HHS debt to income damage parry v inglis tenancy issues meth watercare off the plan rent arrears wins reserve bank election 2017 wealth creation initio investor first home buying heat pump tenancy services Holler rtaa2020 interest rates finance market rent lockdown Gluckman development anz business Guest blog cash-flow minor dwelling covid-19 warm up new zealand Kris Pedersen Mortgages and Insurance property cycle heater mindset quiet enjoyment RBNZ partners bond TCIT housing package bad tenant gluckman report maintenance renovation speculator RTAA 2019 personal growth interest only ird legal buyer's agent heating privacy shortland chartered accountants Tribunal case study principal and interest clnz sublease retaliatory notice insulation kiwibuild lvr worksafe


Introducing Our Partners
Principal Sponsor - Kris Pedersen Mortgages & Insurance logo Gold Sponsor - Barfoot & Thompson logo Gold Sponsor - CoreLogic logo Property Apprentice logo The Insulation Warehouse logo The Renovation Team logo The New Zealand Property Investors' Federation logo