The Budget has finally been announced and contains few surprises from a property perspective. For the last couple of years, the IRD have been focusing on residential property investors with regard to how they treat depreciation and operate Loss Attributing Qualifying Companies (LAQCs) to run their portfolios.

Many residential property investors are negatively geared and rely on the financial benefits from the depreciation and LAQC regime to obtain a positive cashflow. Clearly, those days are over. There is no doubt that the Budget will have an effect on this sector as such investors will not wish to participate anymore - whether this ultimately leads to a shortage of rental accommodation remains to be seen.

The effect upon the commercial property market is not so clear. Most owners of commercial buildings do not regard depreciation as a significant issue. Typically, they will claim it at only 2 per cent of the building's value on a straight line depreciation. I do not honestly believe that the IRD would ever have an issue with this approach as it fairly reflects the fact that the building is obsolescing on an annual basis.

However, when owners are trying to claim the maximum rates allowable on every individual building component, the IRD have clearly taken the view that this was never intended and hence the demise of depreciation.

As I have said, it will not make much difference to owners of commercial buildings, particularly those with buildings with an economic life of less than 50 years, as it appears that some claims will be allowed.

In a wider context, the Budget was fairly bold in my view in signalling a restructuring of the taxation system in such challenging times. I believe that it is a step in the right direction, but how much bigger strides could have been taken had we still been running those huge surpluses of the previous government.

Until next time, have a great week.