I have delayed writing about the removal of the negative gearing, so I could spend more time thinking about what it will mean for property investors.
The Government’s issues paper addressing
negative gearing came out earlier this year and asked for submissions. Both the NZPIF and APIA made submissions on behalf of members.
The proposal outlined in the issues paper is that negative gearing will cease from the 2019/2020 year onwards. In brief, this means a residential property
investor will not be able to offset losses from rental property against other income, such as their salary. The issues paper suggests this will either
come in in one year or could be brought in over two to three years. The five-year time frame promised by Labour in the lead up to the election has
been removed.
There have been some strong opinions on this; with some people saying it is ridiculous to remove negative gearing, while others say the proposal does not
go far enough and that we should stop allowing deductibility of interest as an expense (don’t get me started on that!).
To illustrate the impact of removing negative gearing I thought I would give an example from my own experience. My first property investment initially
made a loss. The interest rates were a lot higher, there were some maintenance issues and being a new investor I made some wrong decisions around tenant
selection. The property made a loss but I offset it against my other income and received a refund. Let’s just use round numbers; I made a $1000 loss
and received $330 back as a tax refund, so I was down only $670. Over the years, the mortgage...
