Tax plan slammed as 'an orchestrated attack on landlords'

Tax recommendations presented to the Government have been criticised as "an orchestrated attack on residential landlords" by the Property Investors' Federation vice-president.

Andrew King said the tax working group's recommendations would devastate his sector and could affect the lives of about 1.4 million tenants.

He predicted landlords would rush to leave the industry in large numbers if the Government acted on the report.

The tax group singled out landlords as one big target, saying they were being "systemically under-taxed" and recommending a more direct approach. Axing tax depreciation on buildings, a big bonus for many landlords, is on the cards.

Peter Dunne, the Revenue Minister, backed the tax group's aim of pulling landlords into line.

"There is growing evidence that trusts and companies and highly geared residential rental properties are being used to reduce taxable income and so qualify for Working for Families. Such abuse potentially places an unfair burden on the 60 per cent of families who do not receive Working for Families tax credits," Mr Dunne said.

John Shewan - a tax group member, PricewaterhouseCoopers chairman and landlord - is aghast that some multimillionaire landlords qualify as state beneficiaries because they appear poor on paper. He debunked Mr King's views.

"Landlords are in a business inherently of an investment nature rather than of an operational nature like farming. We have $200 billion tied up in residential rental property, four times the capitalisation of the NZX, yet it results in negative tax. We felt that was very hard to justify in policy terms and we feel some change is required," Mr Shewan said.

About 460,000 privately owned rental properties worth at least $165 billion are home to at least 1.4 million tenants. The state has a big hand in the sector: Housing NZ runs 69,000 houses worth $14.5 billion. The state owns most of those but manages some which are leased long-term from private landlords.

Mr King predicted the recommendations would create social chaos by creating a rental property shortage. All house prices would drop because landlords who bought under one set of rules would quit and flood the market with properties. Tenants would be out on the street if the changes were enacted, he predicted.

The tax working group had a strong bias against landlords and was not interested in the federation's views, Mr King claimed, a point Mr Shewan rebuffed, saying the group had listened to the federation but did not agree with it.

Mr King was outraged that he and president Martin Evans had to pay $200 to attend the group's final session in Wellington last month.

Rental property had no tax advantage over other investments or businesses, Mr King claimed. Rules about expenses for deducting costs such as mortgage-interest payments, upkeep and maintenance were the same for housing as for investments in shares or farming, he said.

"Many businesses make a loss during the first few years while getting established and rental property is no different. The rental market is extremely competitive and tenants enjoy lower rents because of this, helping them to save for a deposit on their own home."

Mr King said many landlords had bought on the basis that they could claim depreciation as an expense. That benefit allowed them to keep down the cost of renting.