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Ring-fencing rental property losses has been tried before, and was easy to circumvent, says New Zealand Institute of Chartered Accountants (NZICA) Tax Director Craig Macalister.

The Government is widely expected to remove tax benefits associated with residential property as part of its Budget reforms this week. Its Tax Working Group identified rental loss deductions as costing the tax system $150 million in 2008.

³Loss ring-fencing was tried in the 1980s in an attempt to stop losses from rentals and ŒQueen Street farmers¹. Taxpayers simply structured their tax affairs differently. It didn¹t deliver the policy outcomes the Government of the day anticipated,² Mr Macalister says.

³The lesson is that when you clamp down on only one form of property other forms of investment can be used to derive the same tax benefits The old adage that when the Government closes one loophole it merely opens another is an inherent risk in these sorts of measures.²

NZICA supports simplification of the tax system and changes that make it more equitable.

³In New Zealand, capital assets are under-taxed. If the Government wants to address that, it should apply tax changes across the board and not single out rental properties.²

Moves to restrict the tax benefit of rental property losses could have a ripple effect across the economy including putting downward pressure on house prices, Mr Macalister warns.

NZICA supports a simple, broad-based tax system that is efficient to administer and delivers equitable tax treatment across all taxpayers. The Institute represents more than 31,000 chartered accountants in New Zealand.

ENDS

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