This article was published on 22 March 2008. Some information may be out of date.


  • A landlord can’t understand why others dislike landlords.
  • 4 Q&As on tax and rental properties, including comments on the role of politicians.

QI am quite amazed at the naked hatred that some of your correspondents have for owners of residential investment property. There really needs to be some perspective on this.

First, it should be repeated once again that deductions available to landlords are no different from any other business owner. Dairy owners, builders, restaurant owners and most other business owners deduct their costs from their income before declaring a profit — or loss. Landlords are no different.

Secondly, most of those owners I mentioned are able to sell their business after a time, and take a tax-free capital gain if, for example, the dairy happens to be in a high-growth area, or if the restaurant is so good that it attracts a following that has an intrinsic value. Landlords are no different.

Thirdly, landlords charge an agreed price negotiated between the supplier (landlord) and consumer (tenant). I don’t like paying $13 for a kg of cheese, but since the supplier can get that price elsewhere, I have to decide to not buy it, or accept it. Rental property is no different. If you don’t like the price, don’t buy it.

Lastly, I’m quite happy if IRD wants to have a look at my operation. As it happens, I have been paying tax on my operation for a few years because I took a decision to pay down debt, rather than take on more debt to buy more property. That is why the ‘credit crunch’ is of no consequence to me.

However, if IRD start doing that, I would expect them to do the same with plenty of others. For example, why are the gangs never audited to find out where the money comes from for their property, bikes and alcohol?

Landlords are financially not doing anything out of the ordinary. The envy some feel towards landlords is unwarranted given it is also not extended to other business owners.

APerhaps people dislike landlords because some — although certainly not all — are inclined to crow about how they are getting rich quickly.

Perhaps, too, many of us have been tenants at some point, and the landlord-tenant relationship is not always an easy one. As you say, nobody forces a tenant to pay rent to a particular landlord. But they have to live somewhere, and if rent is a struggle for them, they may resent paying.

Some landlords also have plenty to say about how tenants live in their property — and that may be fair enough. But they can’t really expect their tenants to love being dictated to in their own home.

Your comparison with dairy and restaurant owners is probably fair enough, says Pricewaterhouse Coopers tax partner Scott Kerse. “The ability of a business owner to enjoy a tax-free gain attributable to good will in the business puts them in a position similar to a landlord enjoying tax-free growth in their property,” he says.

I note, though, that you say these other businesses deduct costs before declaring “a profit — or loss”. In most cases, they will be making a profit in most years, or they wouldn’t stay in business for long. And that’s the big difference. Many landlords can cope with losses for many years, covered by other income from a job or elsewhere.

This, too, contributes to anti-landlord feeling. When you deduct your losses year after year and then pay no gain when you sell, who do they think is supporting all this? The rest of us taxpayers.

Your willingness to open your books is no doubt because you are making a profit. Other landlords would I’m sure be less willing.

As for your comments on gangs, I’m reminded that US mobster Al Capone’s career ended in 1931 when he was arrested for tax evasion. Maybe the same thing could happen with our gangs.

Generally, though, I would think questions about the source of gang income should come from the police rather than Inland Revenue.

QI understand your arguments about deductions being needed in the early years for a business to get to a profitable stage etc etc. But I think in general this should not apply to property because:

  • There are two types of buyers in direct competition with each other — investors and homeowners. This distinguishes it from borrowing to buy shares or setting up a restaurant.

    Homeowners cannot make a deduction, so when costs are high relative to rent (as is the case now), the homeowner has a relatively worse cash flow and will often be outbid for this reason. The benefits of home ownership are well documented and thus anything to make it easier should be encouraged.

  • In most cases the future income stream on a property is consistent and will only rise with inflation. There will already be a steady income history and this would be expected to continue. (Compare this with a restaurant or a software starting up).

If the property is making a big loss to start with, in most cases that loss will last a long time until rents catch up.

I am however happy with developers who incur big losses up front being able to claim some, as this encourages building of more houses.

I like your ideas on capital gains and agree that the law is not being applied correctly. I have many investor friends and they are convinced there is no capital gains unless you buy/sell many properties each year.

This is a false assumption based on past practice rather then the law, and they won’t listen to me when I say it could change.

That aside, is a capital gains tax on property also not a distortion relative to tax-free status on New Zealand and most Australian shares?

AI take your point about landlords and homeowners competing. The difficulty is that if we are too hard on landlords when they are making losses, fewer people will invest in rentals. This might raise rents, hurting those who simply can’t afford to buy a home. Should we help homeowners at the expense of tenants?

On capital gains, perhaps you and I spoke too soon. In last Monday’s Herald, Anne Gibson wrote that Inland Revenue is “on the hunt for landlords not paying tax on their rental properties, accusing them of cheating the system by at least $100 million annually.”

Inland Revenue staff are talking to real estate agents and conveyancing lawyers “to find out which of their clients owes money”, says Gibson. The department has also issued a 24-page tax guide for landlords and other information, including a questionnaire and case studies, on You might suggest that your friends check that out.

On your last question, it’s the tax on shares that is the distortion, not the tax on property. Property is treated the same as all other investments.

QYou ask why the IRD do not get people to explain their investments. I can assure you that they do.

In an audit a few years back I was even asked why I was not getting sufficient rent to cover costs.

I showed them the tenancy services website where recent rents (based on bond lodgements) were shown. On one property my rent figure, although round the market rate, was not being achieved (i.e. the tenant not paying). They wanted me to enter what I should have got as income.

As an accountant friend told me years ago, what is important is our intention to profit, not how successful we are.

AYes, but you were audited. In an audit, we would expect questions like that to be asked.

What I’ve been talking about is a routine requirement that every landlord who claims a loss against other income should say in a statement to Inland Revenue either:

  • How they expect the property to become profitable in the next few years, or
  • That they have made the investment with the idea of profiting when they sell, and so they will pay tax on that capital gain.

In light of Anne Gibson’s story last Monday, maybe this will be the next step. Here’s hoping.

QAbout your column in the Weekend Herald, it has always seemed a bit strange why the IRD didn’t police taxing the profit on house sales very diligently.

But when you read a recent government statement that “there was no political will in the house” to change the laws around ring fencing income tax on property, you have to wonder whether the private interests of our parliamentary representatives could be an issue.

A brief glance at the “Register of Pecuniary Interests” of MPs shows that a fair proportion of them have multiple properties and/or trusts which could well hide multiple property ownership. And this is non-partisan, as politicians of all hues are included.

So if the IRD have been told to soft pedal, it’s not difficult to see why. What do you think?

AI think we need to distinguish between ring fencing and taxing capital gains. As I’ve said in the last couple of weeks, I don’t think ring fencing is a good idea, so I’m happy the government doesn’t like it either.

But I do think the current law about gains should be enforced. And while MPs might in the past have felt that too many New Zealanders — excluding themselves, of course! — would be upset, it’s good to hear the government has had a change of heart.

QI guess the landlords can rest easy knowing Cullen is unlikely to label their rental properties as being “strategic assets”.

Then again the core Labour Party Marxists may well be drawing up a list of desirable residences along the entire NZ coastal fringe! Wouldn’t that be a laugh.

ACome now. The government says it’s talking about “a very narrow range of strategic assets”. Then again, we all know about feet in doors.

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Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to [email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.