Latest / Early Edition with Ryan Bridge / Robyn Walker: Deloitte Tax Partner on Labour deciding not to change the rules about landlord interest deductibility

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Robyn Walker: Deloitte Tax Partner on Labour deciding not to change the rules about landlord interest deductibility · Early Edition with Ryan Bridge

• 0:00
  Speaker 1: Chris Hipkins making a major call ahead of the election.
• 0:02
  Speaker 2: We're not going to be making any changes to the
• 0:05
  Speaker 2: current rules around interest deductibility. We did foreshadow when we
• 0:09
  Speaker 2: announced a capital gains tax that that was changing our
• 0:12
  Speaker 2: thinking around how we would look at interest deductibility in
• 0:14
  Speaker 2: the future, and that has now been confirmed. We won't
• 0:17
  Speaker 2: make any changes to the rules as they stand today.
• 0:19
  Speaker 1: Robin Walker, Deloitte tax partner with us this morning. Robin,
• 0:22
  Speaker 1: good morning. Good morning. Now, there's political reasons going on here,
• 0:26
  Speaker 1: all that sort of stuff, but from a tax perspective...
• 0:28
  Speaker 1: What do you think they made this change for?
• 0:32
  Speaker 3: I mean, it makes complete sense to me to not
• 0:35
  Speaker 3: have interest denial if you've got a capital gains tax.
• 0:39
  Speaker 3: When we had the last set of interest deductions being
• 0:43
  Speaker 3: denied back in 2021, what actually happened was that if
• 0:47
  Speaker 3: you were taxable on the sale of the property, you
• 0:49
  Speaker 3: would actually get to take a deduction for all of
• 0:52
  Speaker 3: the denied interest at the point of sale. because that's
• 0:57
  Speaker 3: all part of the equation to determine whether you've made
• 0:59
  Speaker 3: a capital gain. So all you're actually doing if you're
• 1:03
  Speaker 3: denying interest deductions and having a capital gains tax is
• 1:06
  Speaker 3: deferring when those interest deductions get made. So logically, what
• 1:11
  Speaker 3: would happen if they denied interest deductions is that their
• 1:14
  Speaker 3: revenue from a capital gains tax would go much further
• 1:18
  Speaker 3: down from what it's currently forecast to be.
• 1:22
  Speaker 1: Are the numbers the same? So if you sell a house,
• 1:25
  Speaker 1: it would depend on what proportion of property owners sold
• 1:27
  Speaker 1: a house for a profit, wouldn't it? Whereas everyone gets
• 1:31
  Speaker 1: to claim their interest if they are owning a rental
• 1:34
  Speaker 1: property and making money out of that, then you can
• 1:38
  Speaker 1: claim your interest as a deduction. But not everybody would
• 1:41
  Speaker 1: be necessarily making a profit and therefore taxed on their
• 1:44
  Speaker 1: capital gain.
• 1:47
  Speaker 3: Yeah, well, it all comes down to everybody's individual circumstances. So,
• 1:51
  Speaker 3: I mean, interest is part of that, just part of
• 1:54
  Speaker 3: the equation as to whether there is a gain. Obviously,
• 1:57
  Speaker 3: if you're denying interest deductions, it might look like your
• 2:02
  Speaker 3: residential property is more profitable and you might think that
• 2:05
  Speaker 3: you're selling it for a gain. But when you add
• 2:08
  Speaker 3: up all those interest deductions, you might find it at
• 2:10
  Speaker 3: the point of sale that it is actually in a
• 2:12
  Speaker 3: loss position.
• 2:13
  Speaker 1: So do you reckon, how bad would this have made
• 2:16
  Speaker 1: their capital gains tax look if they had gone ahead
• 2:20
  Speaker 1: with capital gains and they had kept or reintroduced a
• 2:25
  Speaker 1: kibosh on deductibility? Would they have ended up with two-fifths
• 2:29
  Speaker 1: of a bugger all to pay for the health visits
• 2:30
  Speaker 1: they'd promised?
• 2:33
  Speaker 3: Yes. I mean, that would be my expectation. They would
• 2:36
  Speaker 3: then They'd have more revenue immediately, though, from denying those
• 2:41
  Speaker 3: interest deductions. So it's a bit of swings and roundabouts.
• 2:43
  Speaker 3: But when you're committing your capital gains tax revenue to
• 2:46
  Speaker 3: a particular spending objective, then it would have impacted on
• 2:51
  Speaker 3: those numbers.
• 2:53
  Speaker 1: Fascinating. Do you think they knew this all along or
• 2:55
  Speaker 1: do you think they just figured it out as they went?
• 2:59
  Speaker 3: You would think that they should have known because they
• 3:02
  Speaker 3: did introduce the interest deductibility restrictions a few years ago
• 3:06
  Speaker 3: and that did have this particular rule which allows deductions
• 3:10
  Speaker 3: at the point of sale. But that said, those rules
• 3:14
  Speaker 3: were incredibly complex. I just looked up the guidance from
• 3:18
  Speaker 3: when they were introduced and it was 216 pages just
• 3:22
  Speaker 3: to explain how the rules worked. So it might sound simple,
• 3:26
  Speaker 3: but it's fiendishly complicated.
• 3:30
  Speaker 1: Sounds like something you're better at doing than me, Robin.
• 3:32
  Speaker 1: Thank you, Robin Walker, Deloitte Tax Partner.