In the past Labour MPs have repeatedly claimed and implied that property speculators don’t have to pay tax on capital gains. A year ago then leader David Cunliffe and finance spokesperson David Parker both pushed this fallacy. From Cunliffe and Parker repeat claims on property speculation:
David Cunliffe in a speech to Young Labour:
We have too many children who are getting sick because they live in cold, damp, cramped houses with black mould growing up the walls. Sometimes owned by speculators who just push the rent up while getting rich on tax-free capital gains.
David Parker on The Nation:
“You need to tax the speculators….capital gains tax”
“Loan to valuation ratios would not be needed if they were taxing speculators and building affordable homes.”
“National Party, despite the fact that we had 40 percent house inflation, they’re not doing anything about it. Not taxing speculators…”
Presuming they must have known that IRD does pursue compliance on taxing the capital gains of speculators this looked dishonest.
It’s good to see that Andrew Little seems to be either more informed or more honest. He recently suggesting that the Reserve Bank target speculators as reported in Focus on spec buyers: Little
Mr Little said the Government must take action on property speculators who were damaging the housing market.
Mr Little is known to not favour the introduction of a capital gains tax, something Labour had campaigned on in the last two elections and lost.
Mr Little said there were several options the Government could take to prevent property speculators building up large housing portfolios and pushing up house prices.
First home buyers, or those who wanted a rental property for retirement, were being shut out of the market by lending restrictions that should be targeted at property speculators who sometimes owned 10 to 20 houses and sat on them, he said.
”The solution needs to focus on Auckland. There is no point in a family trying to buy a house in Wanganui, where prices are dropping, being subject to lending restrictions designed to lower house price inflation.”
Another solution could be those buying multiple properties needing a higher level of equity for subsequent purchases, he said.
But the most important action was to build more houses to increase supply.
He’s on the same page as National in seeing the need to increase the supply of houses. And I’d expect him to agree with Bill English in his approach in IRD to clamp down on speculators.
Finance Minister Bill English yesterday rejected calls by the Reserve Bank to remove tax incentives for investment housing, which the bank has blamed for rising house prices in Auckland. But he said there was an ongoing discussion about whether the Inland Revenue Department could be doing more to enforce existing rules on property trading.
Mr English said there was already a tax in place for people who bought property with the aim of reselling it.
And with real estate agents and buyers reporting high levels of trading activity in Auckland, “there is a question of whether that should give rise to further enforcement activity”.
Speculators are already taxed, when the IRD can determine that they have been speculating.
At present, speculators have to declare that they are buying a house with the intention of reselling it. They are then taxed on the sale.
The IRD scrutinises property transaction records to make sure people are complying with this rule. In particular, it looks at how quickly a house is sold and the number of houses a person is selling.
Figures released by the IRD showed that $52.4 million was collected in 2013/2014 from speculators or traders – either from one-off speculative transactions or patterns of dealing. This figure is expected to increase in 2014/15. The IRD has already collected $63.2 million.
So IRD are addressing speculation and their tax take is increasing.
Any potential changes to the IRD’s resources would be announced as part of the Budget on May 15.
That suggests that the rules are seen as sufficient but that more resources may be provided to improve compliance with tax on capital gains when speculating.