Kia ora! So, you’re a landlord in New Zealand and want to get your head around the tax side of things without needing an accounting degree? You’ve come to the right place. Owning a rental can be a great way to earn extra cash and build wealth, but it’s crucial to know the rules to avoid a nasty surprise from the IRD (Inland Revenue).
This guide breaks down the key stuff you need to know about rental property taxes in NZ, from what you can claim to those tricky new rules. Let’s dive in! 🏡
Earning Your Rent: The Basics
First off, any money you get from your rental property counts as income and must be declared in your tax return. This includes the obvious stuff like weekly rent but also things like:
- Bond money you hold on to because of damage.
- Insurance payouts for a period where you couldn’t rent the place out.
- Costs paid by your tenant that you should have paid (e.g., a plumber’s bill).
If you own the property with someone else, you’ll usually split the income and expenses based on your ownership share. Your rental income gets added to your regular income (like your salary) and is taxed at your usual income tax rate.
What Can You Claim to Lower Your Tax Bill?
The good news is you can claim a bunch of expenses related to your rental, which reduces the amount of income you’re taxed on. Think of these as the everyday costs of being a landlord.
Your Day-to-Day Expenses
These are costs you can claim back in the same year you paid them:
- Rates and water bills
- Insurance for the building and landlord protection
- Repairs and maintenance (like fixing a leaky tap or painting a fence) – but not big improvements like adding a new room
- Fees for your accountant, lawyer, or property manager
- Advertising to find new tenants
- Bank fees for your rental accounts
- Vehicle costs for property inspections. The easiest way to claim this is to use the IRD’s mileage rate.
You can also claim depreciation on things like curtains and appliances (known as “chattels”), but not on the building itself.
The Things You Can’t Claim
Just as important is knowing what’s off the table. You can’t claim:
- Major capital improvements (like adding a new room)
- The upfront costs of buying the place (e.g., lawyer fees, valuation reports)
- The principal portion of your mortgage repayments
- Anything for private use (if you live in part of the property, you’ll need to split the costs)
- Depreciation on the building itself
The Big Changes: Interest and the Bright-Line Test
The government has made some significant changes recently that you really need to be aware of.
Interest Deductibility
This is a big one. The ability to claim interest on your mortgage is being phased out. As of the 2025 tax year, you can’t claim any interest on a property you bought after March 27, 2021. If you bought it before that date, you could claim 50% in the 2024-25 year, but that drops to 0% from 2025-26.
There are a couple of exceptions, though! New builds (generally less than 20 years old) and commercial properties are not affected by this rule. It’s smart to check if your property qualifies as a new build.
The Bright-Line Test
This rule acts like a capital gains tax for property. If you sell a residential property within a certain period of buying it, you’ll have to pay tax on any profit you make.
- 10 years if you bought the property from March 27, 2021.
- 5 years if you bought it between March 29, 2018, and March 26, 2021.
There are exceptions, with the main one being your “main home.” If you lived in the property for most of the time you owned it, you likely won’t have to pay bright-line tax on it.
What If You Make a Loss?
If your expenses are higher than your rental income for the year, you’ve made a rental loss. Thanks to a rule called “ring-fencing,” you can no longer use this loss to lower the tax you pay on your salary.
Instead, you have to “ring-fence” that loss and carry it forward to offset future rental income or a gain from a property sale. This rule mainly affects highly-leveraged investors and means you need to be smart with your finances.
Keeping Your Records Straight
Don’t chuck those receipts in a shoebox! Good record-keeping is non-negotiable. If the IRD ever comes knocking, you need to be able to show them exactly where your numbers came from.
You need to keep all rental-related documents for at least seven years after the tax year ends. This includes:
- Invoices and receipts for everything you’ve paid for.
- Loan agreements and bank statements.
- Tenancy agreements.
- Mileage logs or vehicle expense records.
Using a spreadsheet or accounting software like Xero or MYOB can make your life a whole lot easier.
GST and Property
Generally, residential rent is exempt from GST, which means:
- You don’t charge GST on the rent.
- You can’t claim GST on your expenses.
The main exception is if you’re doing short-term rentals (like Airbnb) and your income is over $60,000 a year. In that case, you might need to register for GST.
Getting It All Done
At the end of the tax year, you’ll need to file a tax return and complete a special rental income schedule (IR3R). It can be a bit of a headache, especially if you have multiple properties or a complex setup.
This is where an accountant can be your best friend. They can help you with:
- Making sure you’ve claimed all the expenses you’re entitled to.
- Choosing the right ownership structure (like a trust or a company) for your situation.
- Keeping up with the ever-changing tax rules.
Ultimately, being a successful landlord isn’t just about finding good tenants; it’s also about staying on top of the financial and tax side of things. It might seem complicated, but with good records and a bit of knowledge, you can keep your rental investment running smoothly and stay on the IRD’s good side. 😊