For property investors in New Zealand, understanding the tax deductions available is essential to maximize returns and reduce tax obligations. Properly managing these deductions can enhance cash flow, making rental properties more profitable. In this guide, we’ll cover key deductions available for landlords, how to claim depreciation on rental properties, and the importance of accurate record-keeping for tax savings.
Key Deductions Available for Landlords
New Zealand property investors can claim several deductions on their rental income. These deductions lower taxable income, resulting in tax savings and improved cash flow. Here are some of the primary expenses that landlords can claim:
1. Interest on Mortgages
Interest paid on a mortgage used to buy a rental property is generally tax-deductible. However, the rules around this are changing, especially for residential investment properties. For new builds, the interest on loans may still be deductible, while older properties may face restrictions.
Example:
If you have a mortgage on a new build rental property, you may be able to claim the interest as a deduction, reducing your taxable income.
Tip: Keep up-to-date on any changes in tax regulations around interest deductibility. Consulting a tax advisor can ensure you claim this deduction accurately.
2. Property Management Fees
If you hire a property manager, the fees you pay for their services are tax-deductible. This includes any charges for managing tenant communications, collecting rent, handling maintenance requests, and ensuring compliance with tenancy laws.
Tip: Make sure to save all invoices or receipts from your property management company to document these expenses.
3. Repairs and Maintenance
Expenses related to repairs and maintenance on your rental property are generally deductible. This includes minor repairs, such as fixing leaks, replacing broken fixtures, or repainting. However, it’s important to note that these deductions apply to repairs and maintenance, not improvements or renovations.
Example:
If you replace a damaged fence or fix a leaking roof, you can claim these costs. But if you upgrade to a more expensive roof or install a new fence where none existed before, these may be considered capital improvements and not immediately deductible.
4. Rates and Insurance
You can deduct property-related expenses such as council rates and insurance premiums. These necessary expenses help maintain the property and protect it from potential damage, making them deductible for tax purposes.
Tip: Keep a record of any council rate notices and insurance premium payments. This will simplify your tax filing at the end of the year.
5. Legal and Accounting Fees
Any fees paid for professional advice or services related to managing your rental property are tax-deductible. This includes accounting fees for preparing tax returns, as well as legal fees for drafting tenancy agreements or handling disputes.
Example:
If you engage a lawyer to review a lease agreement or an accountant to prepare your rental property tax return, these expenses can be deducted.
6. Travel Expenses
If you need to travel to the property to conduct inspections, organize repairs, or meet with tenants, you may be able to claim travel expenses as a deduction. This includes mileage or public transportation costs directly related to managing the property.
Note: Travel expenses must be directly connected to the management of the rental property, and personal trips cannot be claimed.
7. Depreciation on Chattels
While depreciation on buildings is no longer allowed, you can still claim depreciation on chattels (moveable assets) within the property. These include items like appliances, furniture, and other fittings that may lose value over time.
Tip: Keep a detailed record of any chattels you purchase for the property and their expected useful life. This will help you calculate depreciation more accurately.
How to Claim Depreciation on Rental Properties
While building depreciation was removed as a tax deduction in New Zealand in 2011, landlords can still claim depreciation on certain assets within the property. These assets are referred to as chattels, and claiming depreciation on them helps offset some of the property’s maintenance costs.
1. Identify Depreciable Chattels
Chattels are items within the property that are not part of the building structure, such as:
- Appliances (e.g., stove, refrigerator, washing machine)
- Furniture (e.g., beds, couches, tables)
- Fittings (e.g., light fixtures, curtains)
Example:
If you purchase a new dishwasher for your rental property, you can depreciate its value over time.
2. Use the IRD’s Depreciation Rates
The Inland Revenue Department (IRD) provides specific depreciation rates for various assets. These rates help you determine how much depreciation you can claim each year. Different assets have different depreciation rates, depending on their expected useful life.
Tip: Refer to the IRD’s guide on depreciation rates to determine the allowable rate for each asset.
3. Keep Records of All Chattels and Their Costs
Accurate record-keeping is essential for claiming depreciation on chattels. Keep purchase receipts and record the date and cost of each item. This documentation will help you calculate depreciation correctly and provide support if the IRD requests evidence of expenses.
Example:
Create an itemized list of chattels, including the purchase date, cost, and estimated useful life. This will simplify calculating the annual depreciation for each item.
4. Track Disposal of Chattels
If you replace or dispose of a depreciable item, you’ll need to adjust your depreciation calculations. You may also be able to claim a loss on disposal if the item still had remaining value.
Tip: Update your records whenever you replace chattels to ensure your depreciation claims remain accurate.
The Importance of Accurate Record-Keeping for Tax Savings
Maintaining detailed records is essential for property investors who want to maximize tax savings. Good record-keeping not only helps with claiming deductions but also protects you in case of an audit. Here’s how to keep your records organized:
1. Keep All Receipts and Invoices
Save every receipt and invoice related to your rental property. This includes receipts for repairs, maintenance, insurance, legal services, and property management fees. Having a digital or physical record of expenses will make filing taxes much easier.
Tip: Use a dedicated file or app to store all rental-related receipts in one place, reducing the risk of misplaced documents.
2. Use Property Management Software or Spreadsheets
Organize your records using property management software or a dedicated spreadsheet. Tracking income, expenses, and deductions in a structured way will simplify tax preparation and help you maximize your deductions.
Example:
Set up categories in your spreadsheet for each type of expense (e.g., repairs, legal fees, rates) and enter details for each transaction. This will give you an at-a-glance view of your property’s financial performance.
3. Document All Transactions Promptly
Record expenses and income as soon as they occur to avoid missing important details. Regular updates ensure that you won’t overlook any deductions and make tax preparation much simpler.
Tip: Set aside a few minutes each week to document rental income, expenses, and any depreciation adjustments. Consistent record-keeping prevents year-end overwhelm.
4. Keep a Record of Loan and Interest Payments
If you have a mortgage on the property, track all interest payments, especially if they qualify for deduction under the latest tax rules. Knowing exactly how much you’ve paid in interest helps avoid miscalculations and missed deductions.
Tip: Request an annual interest statement from your lender to keep your records accurate.
Key Takeaways
- Claiming tax deductions like mortgage interest, property management fees, and repairs can significantly reduce taxable income.
- Depreciation on chattels is still allowed, and keeping a record of these items helps ensure accurate depreciation claims.
- Accurate record-keeping of all rental income and expenses is essential for maximizing tax savings and ensuring compliance.
At NG Property Management, we assist landlords with keeping property finances organized, optimizing tax deductions, and maintaining accurate records. Our team can help you streamline the management of your property’s financials, ensuring you make the most of tax benefits. Contact us today to learn more.
Disclaimer: This blog provides general information and should not be considered tax advice. Please consult a tax professional for guidance on claiming deductions and tax compliance.
