How much tax do you pay on rental income?

Rental income tax: Introduction

In New Zealand everyone has to pay their share of tax and in this way the nation’s government is able to fund those services considered as being free such as education, healthcare, welfare and the general upkeep of services like the roads we travel on every day. You have little choice in making your contribution. If you want to live in New Zealand then most of your income is liable to be taxed. The most common types of taxation taken from our personal income come from
1- Our salary or wages
2- Business or self-employment income
3- Most benefits we may receive
4- Any income we receive from investments
5- Rental income
6- Any profit we make from selling capital assets
7- Any income that a resident of New Zealand earns overseas
For this article we are looking at the tax you have to pay on rental income. 

Property tax is my Specialty: call me now on 09 299 1000 to discuss how I can assist with your rental property tax!

Do I need to Declare any Income I Receive from a Rental Property to IRD?

Almost all rental income is taxable. This includes any income you receive from renting out a residential property, your own home, a room in your home to boarders or flatmates, a sleepout or a caravan.
Weekly Standard Cost
This is calculated locally and if your rental income is below the weekly standard cost then you do not need to file a tax return, for the best advice on this seek the services of a tax accountant like the people on this website.
You will also be exempt from paying any tax on the income you receive from private boarders if the rent is equal to or below the weekly standard cost or if this is your only income. If your rental income is taxable you should keep a record of all your income and expenses so that the profit can be calculated at the end of the tax year on the 31st of March.
Do I need the Services of a Tax Accountant?
Many people prefer to use the services of a tax accountant. There are so many hidden expenses that you can claim for and in many cases a good tax accountant can greatly reduce your tax bill. You do not need to worry about the bill you will receive from the tax accountant as that can also be added to your expenses. Let the tax accountant file all the paperwork, they are professional at their job and it means less heartache and financial stress for you.

What Expenses are legible for a tax deduction on Rental income?

There are several expenses you can claim a deduction for against your rental income in addition to the bill you receive from your tax accountant as mentioned above.
1- Rates and Insurance.
2- The interest you pay on any money borrowed to finance your property.
3- Any fees or commission you pay to agents that collect the rent, maintain your rental property or find tenants to rent from you.
4- Routine repairs and maintenance (this does not include alterations that substantially improve the property).
5- Any expenses incurred by motor vehicle or other travel expenses connected to the property.
6- Mortgage repayment insurance.
7- Depreciation, this does not include building depreciation (depreciation is reduced to 0% on buildings that have an estimated useful life of greater than 50 years).
Taxable Income from Private Boarders
The calculation for the tax payable for people who take in private boarders changed at the beginning of the 2007 income year. The change means that fewer people now have to file a tax return if they provide accommodation for private boarders.
If you receive an income from one or more private boarders you can choose either the standard-cost method or the actual-cost method to work out the tax you are liable to pay.

The standard-cost method to calculate tax on rental income for boarders.

The standard-cost method uses the average price calculated on basics such as the cost of food, heating, power and transport. It also includes outgoings such as rates, insurance, interest costs, mortgage, repairs and maintenance. It uses an average set across the country and is annually adjusted for inflation.
If your income from your boarders is lower than the standard cost that is allowed you will not have to file a tax return. You should always keep all your records of expenditure to avoid paying tax on this type of income.
For the year ending 31st March 2018 if you have one or two boarders the standard cost is $266 each week for each boarder. If you have three or four boarders the standard cost remains the same for the first two and $218 each for the third and fourth boarders. If you have five or more boarders you cannot use the standard-cost system and will be liable for tax as part of your income. You will need to complete an income tax return.
Actual-cost method
The actual-cost method means you must keep all your records of income and expenditure for the year. You will be required to complete an income tax return to declare any profit or to claim actual expenditure incurred.

Some of the rules regarding GST and rental income tax!

GST or goods and services tax usually applies to goods and services that are sold in a business at a rate of 15%. There are four specific categories of supplies that fall into separate rates. These are exempt, zero-rated, special supplies and receiving remote services.
Exempt Supplies
Exempt supplies are goods and services which are not liable to GST and so are not to be included in your GST return. Renting a residential dwelling is one of the exempt supplies, so if you rent out a building, part of a building, or a piece of land you are not liable to charge or pay GST on that income or expenditure. You should check with your tax accountant for more information on this requirement.

How much tax do you pay on rental income: Conclusion.

As written at the beginning of this article, we are all liable to pay taxes. It is advisable to seek the professional advice and guidance of a tax accountant to ensure you are fully paying your taxes offset against any expenditure. 

Every Situation is client specific: Give Gerard a call on 09 299 1000 for a free complimentary chat on how I can help!

Although we are based in Auckland, we can do your property accounting and IRD tax accounting for your New Zealand tax entities if you live anywhere in New Zealand, Australia or the world.

We do taxes for business, LTC tax (Look Through Company tax), and all property related tax accounts. We are property investors ourselves and have a thorough understanding of the IRD rules regarding property investment tax.