Income and the IRD

Over the last two weeks I set out to create a little debate and awareness building on what the IRD consider income. Specifically with regard residential property investors who by and large, anecdotal evidence would suggest are either flouting the law or are just plain naïve.

Rather than just labour the well worn line of you earn - you must pay, I took a different approach and the results have been spectacular. My email has been running hot.

Below is an abridged extract from one of those folk that has a view worthy of consideration. Many others are sadly just in the plain naïve camp, or criminal, and expect to be treated somehow, beyond the general taxation laws of the land.

A reader comments; Residential investment is just another form of investment such as farming, business, commercial property.  The same tax laws for depreciation and income tax should apply.

I guess what is bothering you is that the average person with a bit of equity can start doing what the business people have been doing for years.

Yes, I am a residential property investor.  I embarked on this form of investment because I was only getting 3 to 4% returns on my professionally managed fund investments.  But the fund managers were doing well and living up the corporate life on my investments.  I could have done better by putting my savings in the ASB Bank. Property investment has given me the opportunity to invest just like the farmers, business people and commercial property people.  The returns are not great, 5% max, but someday I should be able to cash in on my efforts of maintaining my property in good condition for people to live in.

However, I do agree that there is the small scale property developer who builds, upgrades and sells housing without paying tax.

In this case their income is the value added to the property. However as their operation is below the IRD horizon, they can build, upgrade and sell say 3 to 4 properties per year without paying tax. $50,000 to $100,000 profit per property is a good tax free income.

There is also the sole trader who does jobs cash.  I have often been offered a cash price for a job.  While it is tempting to take, this means legitimate tax payers like myself have to carry the tax evaders. The cash economy is worth millions.

So instead of targeting residential investor, why not focus on improvements to the tax system that spreads the tax burden more fairly without loading it all on the middle income
PAYE taxpayer.

Original Article published November 2006