Friday, 07 August 2020


Don't ignore rental property tax charges

With the busy summer season in full swing and the end of the 2019/2020 financial year less than three months away, rental property owners are reminded that it’s no longer possible to deduct residential rental losses against their other income.

Whitianga-based accountant, Philip Hart, says the changes are applicable to both long term rental properties and holiday rentals. “Residential rental property losses are now ringfenced,” he says. “The change became effective from 1 April 2019. Losses can be carried forward from year to year, but in practical terms will only be able to be used to reduce a rental property owner’s tax bill when the property starts to make money.

“The expectation is that the ringfencing of losses won’t have too much of an impact on the ability of rental property owners to afford their properties as losses aren’t necessarily huge in a low interest rate/high rental return environment such as what we have at the moment.

“The change is relatively straightforward with regard to a property that’s rented out to long term tenants or primarily rented out as holiday accommodation through the likes of Bachcare and Bookabach.

“Where things become complicated is when property owners rent out parts of their family home to long term boarders or, say, Airbnb guests. The income so generated needs to be declared to the IRD and all expenses incurred in generating the income can be deducted. But how do you determine if the expenses were incurred in the course of generating the income and how do you determine the amount that’s deductible?

“For example, can you claim part of your broadband bill as an expense incurred in providing a room in your house, where you live, to Airbnb guests? The answer is yes, but how much should you claim? The same goes for any mortgage interest you may pay on your primary residence.”

Another issue to consider is whether the owners of holiday rental properties should claim GST on their property. Philip says that although GST may seem like a relatively simple tax, the pitfalls are many. “GST can’t be claimed on the purchase price, or the value, of a long-term residential rental,” he says. “In the case of holiday rentals, extreme care should be taken. If the gross income a holiday rental generates is below the threshold where GST registration becomes compulsory, which is $60,000 per year at the moment, it’s probably better to not register for GST. If the property is ever sold, turned into a long-term rental or becoming the property owner’s principal place of residence, the GST on the current market value will have to be paid back, usually much more than what was originally claimed. In situations such as these, GST effectively becomes a capital gains tax. If your GST-registered holiday home is owned by a trust or company, you may also have to account for GST on the market value when you stay in it yourself.

“Overall, the best advice I can give to property owners is to talk to their accountant. Rental properties are a changing landscape and they need to make sure don’t fall into any trap that could have been avoided. The IRD receives information direct from the likes of Airbnb and Bookabach, so people who ignore the changes, do so at their peril.”

Pictured: Rental property owners, including long term rental properties and holiday rentals are advised to talk to their accountant about tax changes that became effective from 1 April 2019.


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