Philip Macalister: Investors right to claim tax benefits but wrong to rort system

Landlords need to be careful of their claims. Photo / APN

Most property investors are pretty sensible about what they do, but sometimes, as in a recent case reported by the Taxation Review Authority, they are given a bad name.

The decision from the TRA ruled that an investor could not use losses from her rental property to claim Working for Families tax credits because she was operating her portfolio in a way that amounted to carrying on a business.

Someone doing this to claim credits could conceivably get about $3000 a child on an annual basis.

What should be no surprise though is that Inland Revenue considers as few as five properties to be a business.

Property investors aren't just buying an investment when they buy a house. They are essentially setting up a business to provide a service to customers.

That service is accommodation.

Investors are buying and renting property to generate income, capital gains or both.

And they deserve to for the risks they take on, including managing tenants.

The TRA ruling is a sensible one and has been welcomed by the New Zealand Property Investors Federation. However, the ruling should not just be a warning to landlords.

Others, such as farmers, reportedly do similar things to enable them to claim Working For Families tax credits.

Some may argue that these people are rorting the system, but they are not. They are being rational.

This is the way the Government has set the rules and people, naturally, will look for ways to benefit from them. It's what you should expect in a capitalist society.

However, it is not a good look when you get caught like this.

Philip Macalister is the publisher of the NZ Property Investor Magazine and www.landlords.co.nz