Survey indicates housing market cooling due to confusion

A survey of accountants and tax officials found that new legislation meant to help cool New Zealand’s overheated housing market is already having a major effect on investors – but in large part because of confusion and lack of detail rather than a clear policy.

The annual survey, jointly conducted by Chartered Accountants Australia and New Zealand (CA ANZ) and Tax Management New Zealand (TMNZ), solicited the views of 361 accountants in private practice on recent tax policy developments.

Among the results, the survey found that 70% of those surveyed have already seen clients change or express their intention to change their residential real estate investing behaviors due to the ongoing extended light line test modifications and modifications. proposed to deny interest deductions.

CA ANZ NZ tax official John Cuthbertson said other survey results show the key factors at play; the complexity of the proposed rules and the uncertainty, as details could change before the legislation is enacted in March 2022, despite the clear line and denial of interest deductions that come into play earlier this year.

“The survey suggests that the housing market has received a political placebo, in the form of legislation that influences behavior before it is fully developed and enacted.”

“Residential property buyers and investors generally react to the specific details of the legislation. However, in that case the market seems to react to the complexity of the proposed exceptions and legislative inconsistencies, and to the fact that it won’t know exactly which is in place until March 2022, although it is backdated to capture activity in 2021. “

“To be fair, the government’s goal was to calm the overheated housing market, which is causing a series of economic and social problems, but we’re not sure that’s the best way to do it.”

The survey shows that more than 21% of respondents, or 1 in 5, feel “not at all confident” about advising clients on the new construction interest limitation rules, and over 65% of participants felt that the phasing out and denial of interest deductions would be somewhat or extremely difficult to comply with.

Likewise, nearly 50% of those surveyed said they were either somewhat confident or not at all confident about the advice on the new construction light line test.

“Because this policy was not drawn up in accordance with generic tax policy process (GTPP), the risks of unintended consequences and collateral damage are much higher. The investigation shows a considerable lack of confidence in how the legislation will work, and this will likely lead to non-compliance and issues about who gets caught and who isn’t.

“It is important to note that the level of complexity encountered will depend on the number of properties owned, the banking arrangements in place and the combination of interest limitation and concession rules at stake,” Cuthbertson added.

TMNZ chief executive Chris Cunniffe said the survey provides a good indication of how the proposed rules will be implemented.

“In their current complex form, there is likely to be a lot of variability in complying with these laws. Especially since not everyone has a tax agent or accountant to help them.

“While extending the clear line test to 10 years might be fine for most landowners, the denial of interest deductions and how that relates to new construction is likely to be misunderstood. “

“The government has the opportunity to clarify the changes to the law and to simplify certain aspects to help owners and accountants. “

CA ANZ will make an oral presentation to the Finance and Expenses Committee on Monday.

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Penny D. Jackson