Property investment involves multiple processes that contribute to smoothly run transactions between landlord, resident and the IRD. As a property owner, you have to manage your rights and responsibilities when dealing with your property and the occupants. When managing investment properties, you will need familiarise yourself with your income, claims and tax obligations you will encounter.
It is important to know what forms of income you are receiving as they will be needed for tax purposes. General income from the property will be counted under income tax so it will need to be included in tax returns as such. This can come from property leased to tenants or flatmates/private boarders within your own home. If you are receiving rent payments in advance before the end of year, they must be counted, even if the rent covers a period into the next year
Claims can be made for a variety of expenses in the case of owning investment properties.
You can make claims on:
- Interest – see changes to this feature below
- Agent commissions or fees regarding rent collection
- Accountants fees
- Motor vehicle expenses for travelling to and from the property
- Repair and Maintenance costs depending on the nature of the repair.
You should also make note of expenses you cannot claim such as:
- Purchase price of the property
- Capital portion of mortgage repayments
- Costs of property additions or improvements
- Repairs or replacements that increase the property’s value
- Agent commissions or fees regarding buying or selling of the property
There are many obligations around tax time regarding investment properties. You must have detailed records to accurately calculate income and expenses claims including: bank statements, invoices, receipts, list of assets, rental agreement, loan mortgage agreement and any working papers for calculations.
If you receive payments for accommodation within your home you can also be eligible for claims. When you have five or more boarders/students, you must complete an annual tax return.
Changes to allowable claims after March 2021
With housing costs in New Zealand rising rapidly (up 23% in just 12 months), the New Zealand Government introduced reforms intended to reduce incentives for housing investors while increasing the supply of new housing.
Of particular note for investors are the following items: –
- Investors can no longer claim interest deductions for buying an existing residential investment property acquired on or after 27 March 2021. For investors who bought before that date, interest deductions will phase out over the next four years to 1 April 2025.
- New builds will be exempt from the bright-line property 10 year period, and will only have to be held for 5 years for capital gains on resale to not be considered as taxable income for investors. The NZ Government is still to decide whether interest deductions for investors will be available for new builds.
- From May 1 the Reserve Bank of New Zealand is only allowing most investors to borrow up to 60 per cent of a property’s purchase price. Lenders will be able provide a maximum of 5 per cent of new mortgage lending to investors who have a deposit of less than a 40 per cent.