More on Re-Balancing Owner-Occupiers against Investors

More on balancing Owner-Occupiers against Investors

RBNZ is giving consideration to making certain investors pay higher commercial rates but have problem with how investors can manipulate their borrowing
The Solution?
Assume ALL loans are commercial by placing a levy of perhaps 2% on the charged rate.
To balance this for an O-O credit back this levy where the O-O can prove occupancy for a minimum time each year.
An O-O can get some benefit for one investment unit by attaching a mortgage to the family home to invest in another property but this is very limiting.
The pressure from such action would ultimately lower property prices and benefit both O-Os and investors who would get a higher yield on fully owned  (unmortgaged investments)

An example
Property value $400k with mortgage $300K at 6%. Rent may be only $450 p.w and relatively already tops. Net return after rates etc is possibly only $3000 p.a.
A 2% levy would add $6000 to an Investor mortgage which would make a considerable difference to cash flow and also nett profit or loss, turning the investment into a loss.
For a proved zero O-O there would be no difference.
However with this in place the property price would fall  (less or no Investor interest) to maybe $350k over time.

At some point the Investor may be able to make a case to buy. Rents are relatively inflexible.
A renter may be able to consider buying with a lower deposit because the value has eased by $50k

FIF and Tax on UK Shares

Lloyds 9.25% Prefs (LLPC)
Calculation based on 10,000 shares

Current price 137.75p Value GBP 13775
FIF tax at 5% (based on NZ rate 17.5c/$)  13775 x .05 x 0.175       =  GBP120.53

Dividend 9.25% net  GBP 925  (Gross GBP 1027.77 less GBP 102.77 deducted at source)

Tax due in NZ in GBP base is GBP 17.76    (120.53 -102.77)

Convert at rate $1.96 the tax due is $ 34.81
Payable on income of $1813
That is 1.92%

The faults:
If there are other shares that pay less or nil dividend , then they are still taxed on their capital value when over $50,000 in total.

Allowing the Owner-Occupier to compete with the Investor

The INVESTOR has a very real advantage over the OWNER-OCCUPIER.
Deducting interest cost is not available to the O-O
How to change this assuming giving that advantage would cost too much Government tax revenue.

Well try this:

• Firstly allow the O-O to deduct 10% of their interest bill against tax on other income while at the same time giving the Investor only a deduction up to 80% against rent actually received.

• Change these ratios each tax year ( say to 20%- 60% then 20%- 40% and  then reduce each to 20% and finally 0%)

Any Investor who is already debt free will never be affected in any way.
House prices would even out at a lower level over time to more affordable values.
The deductible interest should be limited to a percentage of the actual rent income received.
Empty houses would receive nil tax relief.
Residential land available for subdivision should also be included

NEEDS TO BE TAX NEUTRAL FOR GOVERNMENT!