The Government’s Covid-19 relief package includes increasing the threshold from $500 to $5,000 which will determine which assets can be written off as expenses for the 2020/21 tax year.
“This is a good initiative that could see landlords bring forward their spending on insulation and heat pumps for rental properties to comply with the Healthy Homes requirements”, said Sharon Cullwick, Executive Officer of the NZ Property Investors’ Federation (NZPIF).
“Due to the new requirements, virtually all rental properties in NZ will be required to have a heat pump. In addition, most rentals that already have a heat pump will most likely have to install an extra one or replace it with a larger model in order to comply.”
Officials estimate that this could cost around $10,000 per rental property and this could well result in increased rents. However, increasing this depreciation threshold would mean that rental prices should no longer need to rise as much as they would have if landlords couldn’t claim any of this cost as an expense. Good news for landlords and tenants.
Unfortunately, there is another law which will negate this Government initiative. A Taxation Bill passed last June ring-fenced rental property losses preventing them from being used against other income. This law change will mean that the tax benefit of increasing the depreciation threshold will not be able to be claimed in the year the expenditure is made.
Given that ring-fencing of rental property losses will remove the benefit of the Covid-19 relief package, the NZPIF has requested that Government delay the introduction of ring-fencing till the 2021/22 tax year.
While this would reduce the Government’s tax take, a University of Otago study showed that for every dollar spent on insulation and energy efficient heating, Government saves five dollars in health care expenditure. This means that the Government will be saving more in healthcare expenditure than they will lose in rental property tax.
Providing an incentive to bring forward heat pump and insulation spending will not only help the economy, tenant wellbeing and Government expenditure, it will also reduce hospital admissions, freeing up hospital resources for Covid-19 cases. We hope that Government will give urgent attention to this proposal.
The New Zealand Property Investors’ Federation represents 7000 property owners and is responsible for educating and supporting landlords to ensure New Zealanders have access to high quality rental properties.