Proposed new rules confirmed today as part of the wider tax shake-up will eliminate landlords’ and businesses’ ability to claim depreciation on buildings and tighten the rules for LAQCs.
Announcing the new measures Finance Minister Bill English said, "These changes will reduce the opportunities for well-off people to structure their affairs for tax purposes."
"Changes to the treatment of QCs and LAQCs will ensure that owners cannot claim a tax deduction on losses at a higher rate than they pay on profits."
The new measures are outlined in a Supplementary Order Paper (SOP) that will introduce several Budget 2010 tax measures to the Taxation (GST and Remedial Matters) Bill, which is nearing its final stages in Parliament.
According to WHK tax principle Scott Mason there is little that is new in the document.
"From a policy perspective, little has changed," he said.
Withers Tsang co-founder Mark Withers also found nothing new in the SOP other than "confirmation they're going to enact those [earlier flagged] changes."
He said that nothing in the new release came as a surprise, and that chartered accountants have already been working with property investors ahead of the law changes.
The proposed changes have been finalised after public consultation and will include measures to close loopholes in the tax treatment of loss attributing qualifying companies (LAQCs).
They will also tighten the rules to prevent shareholders from deducting losses at their marginal tax rate and paying tax on profits at the lower company rate.
It will also end landlords' and businesses' ability to claim depreciation on buildings with an estimated useful life of 50 years or more.
New tax rules will also be put in place to ensure people can still claim accelerated depreciation on the fit-out of commercial and industrial buildings, as well as depreciation loading on assets where investment decisions were made before May 20, 2010, but not finalised until sometime after.
Mason believes that "without doubt" the new measures will impact on property investors, with the new tax regime effectively spelling the end for LAQCs.
He believes the majority of property investors will shift from LAQCs to Qualifying Companies (QCs), a structure that "still has an advantage" for the investor as capital gains can be distributed tax free.
Revenue Minister Peter Dunne said, "Since Budget night there has been considerable consultation on the implementation details of the tax measures announced and I believe the changes outlined today are a fair and pragmatic response."