Rental Property Accounting: Good Practice
1. Keep a separate bank account for the rentals. Provide Bank Statements for the rental account for 1 April to 31 March each year. Having copies of the loan statements for any debt on the properties for the financial year is also needed to make sure you have sound Rental Property Accounting.
2. Bank receipts intact for the rentals into the bank account.
3. Costs relating for the rental business should be paid out of this bank account. Money you take out for personal use should be coded to drawings. Wherever possible, items of ordinary personal expenditure should not come out of this account as they are not a deductible expense for tax.
4. Create an East light file and put invoices and receipts in it in date order, divided by months, latest on top. This ensures that invoices can be easily reviewed when tax returns are prepared.
5. Home Office – if you are paying rent or mortgage interest on your personal home, any area set aside for business use MAY be claimed as a proportion over the total area of the house.
For example: If 10% of the house is used for business, 10% of the relevant costs are claimable. Keep invoices in the file so they can be claimed. Items claimable include:
Home and contents Insurance
Interest (if applicable)
Land Rates (If applicable)
6. Phone/Internet costs
Landline, internet and mobile phone costs that relate to business use can be claimed. Generally, for a small business 25% is able to be claimed without issue, more if it justified. However, this needs to be discussed and considered to ensure the claim is an accurate representation of the actual business cost.
7. Petrol and motor vehicle costs
Please keep a log book of travel for at the rental property. If you are inspecting the properties or need to visit the tenants to do repairs, then this travel may be considered as an expense of running the business. For example: If you need to travel to a hardware store to pick up items for repairs, this is also business travel. Each year the total kilometres of business travel are calculated and claimed using mileage rates as allowed by the Inland Revenue Department.
8. Generally business entertainment is 50% deductible. Record the name of the person and relationship on the invoice as you go along to substantiate the claim as part of your Rental Property Accounting.
Please contact us if you have any questions!