Marlborough Property Investors' Association
Martin Dunn says he has been advised that returns from the sale of houses bought by his new investment company will not be taxable.
By Susan Edmunds
That's despite the fact that the houses have been bought with the expressed intention of eventual sale.
The Dunn Funds is seeking $7.5 million to buy 10 Auckland houses. After 11 years, a vote will be held on whether to sell. If 75% do not back a sale, a vote will be held every year after that until they do.
Dunn said he had been working on the property investment vehicle idea for four years.
He expected that investors would have money in more than one fund, which would cash out at different times. Each company would own a maximum of 10 properties, to provide diversification.
Online advertising says the minimum investment would be $25,000.
Property commentator Olly Newland and columnist Bob Jones have questioned whether the expected 8.4% return after 11 years would be subject to tax.
Newland said he assumed the 11-year timeframe was designed to get around a belief that anyone who held a property that long was exempt from tax: “My advisers tell me the ’10-year rule’ cannot be relied on, if the 'intention' from the start was always to make a profit. In this case this new fund seem to clearly indicate that this is its intention.”
But Dunn said he had a conversation with Finance Minister Bill English some time ago about the implications. “He said ‘how long would you keep them for’, I said 10 years. He said ‘no problem’… my lawyer and accountant are adamant it will not be taxable.”
He said even with a 15% capital gains tax, the expected return would only drop from 8.4& to 7.3%.
Dunn said he was not interested in getting to debate with Sir Bob.