Readers will know that the subject of property-based tax reliefs has been covered before on the blog, particularly their effect in inflating the real estate bubble and driving house and apartment prices to stratospheric heights before reality intruded in late 2006.
The way it worked was investors bought a property in a “designated area” – and the rationale for choosing areas to be designated seems to have been nebulous – and they could write off all their rental income against tax. This meant that apartments in godforsaken shitholes were going for Beverly Hills money, purely as a tax dodge.
Now it seems that proposed changes will allow tax relief only on the Section 23 property itself – and, needless to say, investors are up in arms.
Witness the following extract from an advert, placed by the Institute of Professional Auctioneers & Valuers. The advert is styled as a letter to Finance Minister, Michael Noonan, asking him to preserve the existing tax shelters. A selection of the "letter", below, is in green. My own thinking-aloud obversations are in red type.
“The people affected by these changes are tax compliant [never mind that such reliefs were created to avoid paying tax… legally of course] ordinary individuals, like me, who were encouraged to invest in schemes in specific areas in order to rejuvenate these areas [never mind rural areas blighted by empty apartment blocks and unwanted holiday home schemes.]...
..Like many others, I responded to the incentives introduced and paid a premium to acquire the tax relief attached to the properties although the project itself yields low rental income…. The withdrawal of these reliefs will mean that I will now suffer great financial distress….
….The proposed changes will further depress property prices, will increase repossessions by financial institutions, and will bankrupt investors thereby increasing the financial burden on the already stressed taxpayer..."
Nice to see tax-shy investors expressing such concern for the taxpayer, eh?
Given the number of solicitors and creative accountants who jumped on the Section 23 bandwagon, it can’t be long before they make a legal challenge, can it?
And like all powerful interests who have their day in the High Court – as they can afford it - we can be sure any changes to property-based tax shelters will be found “unconstitutional”.
Just wait and see.
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