The Ministry of Social Development (MSD) has initiated a review of the Accommodation Supplement.
The AS is a government tool to assist certain ethnic (Maori and Pacific Island) groups and low-income people to access housing in the private rental market.
It is estimated that every year, more than $730 million is paid out in the accommodation supplement to beneficiaries and non-beneficiaries who rent, board, or own their own home.
For the Federation the review is of particular interest as it has long advocated for it to be paid directly to landlords, if the tenant agrees. A draft response along these lines has been prepared and circulated to you.
The review is to assess the effectiveness and role of the AS, and to identify any changes that are needed.
Written submissions have been invited by MSD and the closing date for feedback is 30 September 2006.
The Inland Revenue has confirmed announcements from last year’s Budget that depreciation claims on building fit-out and chattel items are to be depreciated at the new building rate of 3%. (Inland Revenue confirms stand on depreciation)
IRD advise that property owners can still depreciate chattels such as carpets, drapes, light fittings, whiteware, water heaters, clothes lines and other fittings that are not part of the building, as separate assets.
However, assets such as internal walls, doors, electrical wiring and plumbing, kitchen cupboards, bathroom vanities and built-in wardrobes and so on, as well as furniture and fittings that are permanently attached are to be regarded as being part of the building and as such depreciated at 3% per annum.
IRD say property owners who have been splitting these components out from the cost of the building will have overstated their depreciation claim in the past, and will not have to adjust previous years' income. However they “will be required to add the value of the various 'components' they have been depreciating individually into the cost of the building, and combine the depreciation claimed for those individual assets.'
Written submissions on the Residential Tenancies (Damage Insurance) Amendment Bill closed on 14 July. On 26 July the Social Services Select Committee began hearing oral testimony including that of the Federation and the Auckland Property Investors Association.
For ease of recall, the bill proposes protection for tenants against personal liability for damage they were not responsible for.
The key implication for Federation members is that landlords will have to insure the actions of tenants (for which they have no control over). A draft response to the bill was prepared and forwarded to you last month for circulation and consideration by members of the Federation Executive.
In outline, the Federation:
As previously reported the Housing Restructuring and Tenancy Matters (Information Matching) Amendment Bill was passed by Parliament last month. Unfortunately, the Bill did not accede to the Federation recommendation that the bill to be extended to enable the Department of Courts (and its officials) to swap with the Ministry of Social Development tenants and tenancies address for service data.
The Federation’s position however was acknowledged by opposition MPs during the passage of the bill and it is instructive to note the contribution made by Anne Tolley National Party MP who made the following comments:
“I cannot let this bill’s final debate go without talking about New Zealand’s largest group of landlords, the New Zealand Property Investors Federation. It made a submission to the select committee and, as one would expect from an organisation like that, it was an excellent submission and very professional. Whilst the federation supported the intent of the bill, it asked that the bill be extended to enable the Ministry of Social Development to supply the Ministry of Justice and its officials with details that would enable them to collect court-awarded payments from delinquent tenants. The federation’s submission made some very powerful points, which unfortunately have been set to one side by the officials as being outside the scope of the bill. The bill before us is designed to provide the Government with information to enable it to catch fraudsters and those who get into debt to the Government. The federation’s argument was that it, too, wanted information to enable it to catch fraudsters and those who get into debt with it, and I felt it had a very powerful argument.
“The federation referred to the 2003 agreement that, under a tenancy tribunal judgment, creditors could be given assistance to trace tribunal debtors by being provided with access to some Government-held address information. It made the point that private landowners are owed between $5 million and $6 million in rent arrears, as against the Government’s $1.6 million of rent arrears, and that private landowners are owed at least $43 million in damages. The federation is continually frustrated at its inability to track down tenants who have disappeared but are still within the State system. Many of the tenants are known to the State and still receive benefits from the State, whilst owing millions of dollars for both damage and outstanding rents to people who have provided them with accommodation.
“I feel it was a great pity that the matter was deemed to be outside the scope of this bill, because the 2003 agreement is obviously not working. In fact, the officers, when reporting to the select committee, referred to that agreement and suggested it may well be formalised in statute as a result of the current review of the Residential Tenancies Act, which I understand has now been withdrawn”. (Hansard 29 June 2006)
Also acknowledging the Federation position and its attempt to move an amendment NZ First Housing spokesperson Pita Paraone had this to say:
“Comment was made about an earlier statement New Zealand First made in regard to the intent of this bill being extended to other Government departments. I believe that one or two submissions made during the select committee consideration of the bill requested that its provisions should be extended to the courts. Although that is not the intent of the bill, I would have thought, given the great support that certain parties gave the submitters, that perhaps a Supplementary Order Paper might be introduced to extend the Government departments involved in the bill by including the courts. The argument put forward by the submitters was a good one and it needs to be considered. At the end of the day, that particular part of our community provides a service that essentially picks up a lot of what Housing New Zealand Corporation is not able to do because it does not have the resources available to it”. (Hansard 29 June 2006)
Recent media coverage of beneficiaries abuse of the welfare system has interestingly highlighted a major concern of the Federation, namely that WINZ should be able to pay a beneficiaries rent direct to private sector landlords (as is the case with HNZ Corporation).
Presently, State housing rents are deducted by WINZ with a tenant's consent and WINZ manages rent to private landlords for difficult tenants.
Of direct interest to the Federation are Judith Collins’ the National Party’s social welfare spokesperson comments saying the party is considering enabling the rent (and power) for some families may be deducted at source by WINZ Specifically, she said:
“Winz allowed Housing Corporation rent to be paid directly for tenants in state houses, but would not give private landlords the same right, she said. That was wrong”. [6/7/06 NZ Herald]
Official submissions on the Taxation (Annual Rates, Savings Investment and Miscellaneous Provisions) Bill closed earlier this month and the Finance Select Committee have been tasked to examine the draft legislation.
In essence the Bill plans to introduce a new regime on overseas investments and in particular impose a tax on investments when they are sold and also on unrealised capital gains.
Whilst not directly affecting the Federation the emergence in the general debate of a wider capital gains tax extending to property is of special concern.
Some commentators have started goading the government to consider such a move. The risk is that the rhetoric may potentially translate into action, although the Minister of Finance has stated for the record that this current administration has no intention of implementing a CGT on property.
In the meantime, the Federation should remain wary as the recent Reserve Bank, Treasury and IRD report on Supplementary Stabilisation Instruments to dampen the housing market did not include a recommendation for a capital gains tax on housing only because it was “outside the scope of the report”.
This ultimately means that a CGT is not totally off the agenda and officials will retain it as a policy option for another time.
Elsewhere, the IRD has released a discussion document on the reform of the tax status of partnerships. See: http://www.taxpolicy.ird.govt.nz/
Of relevance to property investors is the invitation to comment on the future of LAQCs. Some commentators think LAQCs could soon disappear.
And referring to the above-mentioned Reserve Bank, Treasury and IRD report on Supplementary Stabilisation Instruments to dampen the housing market (issued April 2006) we note the report did explore the “ring fencing” of operating losses on investment properties. That is allowing losses on investment properties to be offset only against other property income, but not wage and salary income.
By Thomas Chin
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