May 07 ~ Surviving the politicians
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Well it’s May already, how’s your year going??
It’s certainly a turbulent time in property with the papers full of sensational headlines day after day and the government taking ineffective hand wringing to dizzy new heights. So what does all this mean for us as investors??
Well there are so many scenarios to be played out yet it is impossible to second guess what legislation may come in yet but I thought it might be a good time to talk through some of the most talked about scenarios and hopefully calm some of my more nervous readers down a bit 
.
Capital Gains Tax
Being hailed as either a cure all or a terminal illness, CGT is perhaps the most comon threat being made to the investing community. Now I’m not going to express strong views as to what I think of this and other ideas in this newsletter; however I want to explain to you what the real impact is likely to be. CGT, like many other ideas being disucssed, is not necessarily the ogre it is being accused of being.
Firstly lets understand what a capital gains tax really is. Simply put it is a tax on profits generated through the purchase and subsequent onsale of a property. Buy it for $300,000, sell it for $350,000, pay tax on the $50,000.
Now as a property trader or developer you are already paying this tax on every property deal you do, (or at least you should be to not be breaking the law). So for anyone in the business of property a CGT has an absolute zero effect.
Where it does make a difference is to home owners who purchase their own home for $250,000 and sell it 20years later for $1,050,000 and have to pay tax on the $800,000 gain.
Now THAT is unreasonable in my humble opinion and this is where CGT becomes a problem.
However if we followed suit of most similar countries the CGT regime would either exclude the family home and/or have say a ten year time limit on it. So assuming that the legislation is sensibly introduced the actual impact on nearly everybody is almost nothing. People who are actually trading property will have to pay tax, as they should be doing anyway. Homeowners will not be affected at all, and providing there is a ten year type rule the long term buy and hold investors will not be affected either.
See what I mean? It’s not as bigger problem as many would try to make out.
Controlling finance/banks
So the other major concept continually being kicked around is some form of control on money to make it harder for us evil investors to have our wicked way with rental properties.
Well I guess my take on this is quite simple. Unless we become a communist state as Helen would like, the likelihood of successfully introducing this type of regime is minimal. The problem is that we do have ongoing pressure on housing in New Zealand. It isn’t going to stop for the next 10 to 20 years so no amount of stupid legislation will alter that. As we have seen in America, when the government went out of it’s way to penalise investors they had to repeal the law because it fuelled a chronic housing shortage that the government couldn’t cope with. That is EXACTLY what will happen here as well.
And similarly it is nonsensical to expect the banks to lie down and lose profits and revenue to keep the government happy. Thankfully our banks are run by capitalists, not Labour politicians, so attempts to control them will only lead to new and more varied non conforming products.
Just today I discovered a lending product that is for all intents and purposes a 100% lend but is wrapped up in some other clothes so it looks like something else.
Shared Equity Scheme
Definitely the most laughable of the governments solutions to housing affordabillity is the new shared equity scheme. Now I’m not anti Labour, I’m just anti incompetence and socialism, so this is no dig at Helen and co. But how could any intelligent government consider a scheme like this and say it will make houses affordable when our closest neighbour introduced EXACTLY the same thing and all it did was fuel a housing boom. It’s like doing an experiment and then reading research all with the same results as your own experiment and then publicly stating that in spite of all the research to the contrary we believe this will have the opposite effect it has had every time it has been tested. Hello??
Make no mistake, if they run with this, it will fuel another mini boom before the big one. They are missing the core issue of afffordability in my opinion.
1. People can afford houses, they just can’t afford the TYPE and LOCATION they want. Previous generation were not so selfish and lazy and were prepared to buy what they could afford now to get what they wanted eventually.
2. People who will use the shared equity scheme were going to buy houses anyway, they will just now buy DEARER ONES!! AKA lets create an artificial boom.
3. Our average wage levels are terrible. This is a complex economic issue caused largely by successive governments forgetting the need for capitalism and right wing economics. You can’t have over a decade of socialistic government as NZ has had and not reap what we sow. An anti business, pro welfare government will produce eventually a poor victimised society. look oout the window and read the Herald. Oops it’s already happening.
What’s a poor boy or girl to do??
So how do we manage what the micro-cycle is offering us. I’ve started a discussion about this in my forum as I am observing a negative patttern amongst investors.
We need to understand that market sentiment, media coverage, advice from family and friends etc. ALL affect us. We might not think it does and we might not consciously think differently but the psychological fact is that constant input affects us subconsciously.
So I see an increasing number of investors with less fire in their eyes, doing less, thinking less and achieving less. And I believe it’s because we are slowly internalising all the negative sentiment and the warnings of government intervention etc. we keep hearing and reading.
We need to decide, don’t we, what we are going to do and actively pursue that so we don’t get caught up in the otherwise relentless tide. This will require some work on your part but here’s a few things you can print out and stick above your monitor to keep you thinking right.
I am going to move towards my goals between now and Christmas!!
I am going to take advantage of the opportunities all around me!!
I will complete at least one (trade/lease option/ rental purchase/personal goal) in the next 90 days.
If I find myself thinking or talking negatively about myself or my investing I will correct myself out loud and remind myself that I am a success already and that the current market is creating OPPORTUNITIES for me, not obstacles.
Get my drift?
A great man once said: “All it takes for evil to conquer is for good men to do nothing”.
Well all it takes for you to lose focus and fail is for you to do nothing!!
A reminder!!
The last ever Advanced Trading Workshops are in Wellington and Christchurch in June!!
Both are filling quickly so please come. You will be blessing the people of Fiji enormously and getting a great education. Great value for money, invest in yourself AND help benefit the poor in another nation. Is that win~win or what!!
I promise you an unforgettable event with some of the best quality information you have ever had.
Auckland attendees are still talking about it because it rocks. You need to know how to trade to get going with your investing. So don’t think about it, BOOK IT!!
New Tainting legislation
SUBMISSIONS CLOSE FRIDAY. I have just received this template from Garth. PLease use it and get a submission in!!
Garth has supplied a step by step guide for you below!!
Re Submissions on the Proposed Policy Changes to the Associated Parties Tax Rules
I trust you are aware that these proposed “closing loopholes” in the Reforming the Definition of Associated Persons Policy statement dated 29th March 2007, should it become law, would be devastating to the property traders and investors.
In essence these proposed changes to the definition of ‘associated persons’ in the Income Tax Act will be re defined in such a broad manner, that certain persons that carry on a tainted activity (for example land traders, developers, subdividers, builders etc.) will not be able to dispose of most investment land (buy and hold) within 10 years of purchase date, without paying income tax on any gain on sale.
I have been active in writing articles and assisting with the Auckland Property Investors Association’s submission, my personal submission and meeting with the National Party leader John Key, to make some political impact. However as my client I am urging you to be proactive and take enough time to also add to the opposition by also making your submission to the Policy Advice Division of the Inland Revenue. There is only a day or two to do this as the submissions close this Friday 11th May 2007.
I will assist you step by step. Here goes:
Basic background for your submission:
- Tailor you own submission in your own words.
- Please feel free to follow the lines of the suggested objections included below. But do not copy word for word, as these copies will be not be counted as individual submissions. Also do not prepare one submission and have many persons sign as this will have the same effect.
- Date your submission with a date prior to 11 May 2007.
- Address the submission to:
Associated persons project
C/- Deputy Commissioner, Policy
Policy Advice Division
Inland Revenue Department
P O Box 2198
Wellington - Head up with the title
“SUBMISSION ON THE PROPOSALS TO REFORM THE DEFINITION OF ASSOCIATED PERSONS” - Sign the submission and provide your full name and physical address and email address.
- Possibly include some of these following submissions in your own words, but include your compromise solution which will add a positive flavour to your submission:
a) It is presently unwarranted and unfair that there is a bias against builders, property traders, developers and subdividers. These parties presently provide good economic value by adding to the necessary stock of real estate.
b) These parties already provide taxation and GST approaching a total of 50%.
c) The proposals will tighten further, laws which already discriminate against those involved in trading. It is unreasonable that a nurse or school teacher earning their livelihood by these means, has a preferred outcome on the sale of their rental properties, over the person earning their living as a builder, who is currently treated as a trader.
d) Traders, developers subdividers and builders are the risk takers in our economy who have to invest substantial funds and borrow significantly, employ many staff and assist the economy by providing income to such a wide range of businesses, such as sub contractors, trades people, valuers, quantity surveyors, surveyors, legal and accountancy professionals, real estate firms etc. Any policy changes to the associated party rules would create disincentives for these traders who are risk takers. These changes would suppress property investment and development.
e) Forcing a trader to hold rental properties for ten years so they will not be taxed provides no flexibility for them in the event of a forced sale due to financial hardship, sickness, relationship break-up etc.
f) The Government has repeatedly stated that it wants to simplify the tax legislation. Changes to the associated persons rules in respect to land transactions would actually make the legislation considerably more complex, in addition to producing unfair results.
g) Changes would increase the present inequity and favouritism towards investors in managed funds, shares and other asset classes, which do not have the same prejudice against fund managers, share traders, stock brokers, investment bankers or other investment professionals. We submit that the bias against builders, property traders, developers and subdividers needs to be removed from the legislation, as it is unnecessary.
h) The status quo should remain in the interests of fairness and equity.
I wish all of us success with these submissions and will keep you posted with developments. l have also included a copy of the Auckland Property Investors Association’s submission ( APIA ). This is an example of how your submission could be set out. However there is no expectation for you to make such a detailed submission. I consider two pages of concise submissions would be very effective. Go to it!
Kind regards
Garth Melville C.A. TEP
Chartered Accountant & Managing Director
Company Solutions Limited and NZ Securities Limited
Tel 09 489 9130 +64 9 489 9453
Fax 09 489 9120 +64 9 489 9452
Final Words
On Saturday I took mum to see “Fiddler on the Roof”. Apart from being one of the best performances i have ever seen in theatre the story was incredible. In the midst of great change and unbelievable pressure The father was committed to family, values, tradition and truth. I was moved to tears many times as the father tried to find the line between clinging to what he held dear and embracing new truth. It reminded me of so many of us, desperately clinging to our past paradigm’s and unable to embrace new truth that would bring freedom. If you want ot be inspired, encouraged and brought closer to God, make sure you go and see it: oh and take a hanky
My favourite line is when Topol has been warned of the evil curse of wealth by a young communist. He looks wistfully to heaven and says “May I be struck by this curse immediately, and never recover”
Stay safe ~ Dean and the Massive Action Team
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