Rental properties continue to be a promising investment in New Zealand. They offer a steady income stream from rent and the potential for capital appreciation. Despite a relatively slow property market in recent years, the current climate presents an excellent opportunity for first-time home buyers and those venturing into the rental property market.
Whether you’re already on the property ladder or considering your first step, I’m here to provide essential tips for managing your taxes. Remember, seeking professional advice can give you the reassurance and confidence you need to navigate the complexities of property taxation.
There are two sorts of rental.
Short-term rentals – such as Airbnb, booking a Bach, etc. – are explained in a separate blog; please read it here.
Long-term rental:
The rental earnings will be the income received from tenants in the whole financial year; let’s say the weekly rent received is $700, and the property was on rent for 52 weeks in the financial year, so the total rent will be $700 X 52 = $36000.
It’s important to remember that many of the expenses associated with your rental property can be claimed against your income, effectively reducing your tax bill. By understanding and utilizing these claimable expenses, you can demonstrate your financial savvy and take control of your tax obligations.
A property manager manages most rental properties; all fees, such as one-time letting fees, commissions, bills, etc., are claimable expenses.
Continuing the above Example, Let’s say the property manager finds you a tenant and charges a one-week letting fee and 8%+GST as commission.
| Letting & Weekly Fees Breakdown | |||||
|---|---|---|---|---|---|
| Letting in Fee | $700 | GST | $805 | one-off | $805 |
| Weekly Fee | $700 | 8%+ GST | $64.4 | 52 | $3348.8 |
| Total Fee | $4153.8 | ||||
Advertising fee: If you have to advertise a listing to find new tenants, the amount paid for that will be a claimable expense.
Continuing the example, if you change tenants in the middle and advertise your listing on Trademe for $349, you can claim $349 as an expense in the year-end financials.
Separate bank account:
We request you have a separate bank account for the rental earnings and expenses under
Continuing the example, let’s say you are paying $8.5 per month as a banking fee 12*$8.5=$102 as an expense.
Interest: Most of us have loans against our properties, and we pay interest and principal with every instalment. The principal is not claimable, but the interest on each instalment is claimable.
Continuing the example, Let’s assume the property had a loan of $700,000 at a rate of 6%; the total interest paid would be $42,000.
Cleaning: Any bills we pay to get our property neat for the tenants is a claimable expense
Continuing the abovementioned example, we might have found the tenant in the middle of the financial year. Property owners might have to do a deep cleaning, assuming the $1000 cost will be a claimable expense.
Depreciation : While depreciation on residential rental buildings was removed from 1 April 2011, chattels (movable assets within the property) can still be depreciated—chattels like Heat Pumps & Air Conditioners, Curtains & Blinds, Carpet & Vinyl Flooring etc.
Continuing the example, Let’s say you installed a heat pump for $5k and a hot water cylinder for $2k in July 2024; as of 31 March 2025, you can claim $945 as an expense.
| Item | Cost | Rate | Annual Depreciation | Claimed This Year |
|---|---|---|---|---|
| Heatpump | $5000 | 20% | $1000 | $750 |
| Hot Water | $2000 | 13% | $260 | $195 |
| Total Depreciation | $945 | |||
Insurance: The insurance is paid by almost all of us for the investment property; the insurance paid against the rental property is a claimable expense
Continuing the example, Assume you are paying $150 monthly for insurance. These calculations mean we can deduct $1800 as an insurance expense.
Rates: We must pay council rates for the council in which we own rental property. These rates are a claimable expense.
Continuing the example, considering the screenshot below, let the rental property have a rate expense of 3057.43. This amount can be claimed in year-end financial.
Repair and Maintenance: Repair and Maintenance are standard parts of residential rental; these expenses are but are not limited to
Fixing leaks in the roof
Painting or re-painting the property
Replacing broken windows, taps, or pipes
Fixing electrical wiring
Replacing small sections of carpet, tiles, or flooring
Patching and repairing damaged walls.
All the expenses are claimable expenses and help to reduce the tax bill.
Continuing the example, let’s say we spent 500 on window repair and 300 on a plumber for tab fixing; we can claim 800 in the rental property tax return.
There are many other claimable expenses. For example, you can claim mileage you can claim mileage if you manage six properties independently. You might also need separate office space. In that case, you can claim office expenses.
Many expenses are not claimable, such as capital expenses, mortgage fees, council fines for compliance, legal fees for buying/selling a rental exceeding $10,000, and renovations like adding a brand to the carpet.
Oftentimes, the clients get confused with repair and maintenance and capital expenses. We can face a fine from IRD if we claim capital expenses in repair and maintenance. The thumb rule decides whether it’s a repair and maintenance or capital expense. If it restores the asset to its original condition → R&M (Deductible). If it improves or upgrades the asset beyond its original condition → Capital Expense (Not Deductible, Must be Capitalized)
A professional accountant with experience in dealing with rental property taxation can help you with all the above earnings and expenses. We have been coping with these rental property taxation, and we can help you claim the maximum deduction possible per IRD, reduce the tax bill and be compliant at the same time.
What is Ring-fencing?
Ring-fencing refers to the tax rule that prevents rental property owners from offsetting losses against other income like salary from your job or if you have/had business income from another business.
Until 31 March 2019, if your rental property had earnings of 30000 and an expense of 38000, you would offset the loss of 8000 with any other income you had, like salary or business income. However, fom 01 April 2019, in a similar situation, you can’t offset a loss of 8k against another income. You can carry forward the losses to offset the profit that may occur in future.
Ring-fencing applies to all residential rental properties (except for new builds, which have special exemptions).
Back in 2017/2018, investors in New Zealand were buying more and more properties, and the pricing of properties was inflating quite significantly. It was becoming difficult for first-home buyers to climb the ladder, and investors were ruling the market and taking tax benefits by offsetting their rental losses with other income. To prioritise or to make it more favourable for everyone as well. So, the government impose to law so that it become less lucrative for the investor as they won’t be able to offset losses with other gain.
However, if you have two or more properties, you off set losses with each other. Example property 1 had loss of 5000 and the property B had gain of 6000, the you would only have pay tax on 1 profit.
Ring-fencing refers to the tax rule that prevents rental property owners from offsetting losses against other income, such as salary from a job or business income from another business.
Until 31 March 2019, if your rental property had earnings of $30,000 and expenses of $38,000, you could offset the $8,000 loss with any other income you had, like salary or business income. However, from 1 April 2019, in a similar situation, you can no longer offset an $8,000 loss against other income. Instead, you must carry forward the losses to offset future rental profits.
Ring-fencing applies to all residential rental properties (except for new builds, which have special exemptions).
Back in 2017/2018, investors in New Zealand were buying more and more properties, leading to significant property price inflation. It became increasingly difficult for first-home buyers to enter the market, as investors were dominating and benefiting from tax advantages by offsetting rental losses with other income. To address this imbalance and create a fairer housing market, the government introduced this rule to make property investment less lucrative by removing the ability to offset rental losses with other income.
However, if you own multiple properties, you can offset losses between them. For example:
- Property A Loss = $5,000
- Property B Profit = $6,000
- Total Taxable Profit = $1,000 (since losses from one property can offset profits from another)
This means investors can still reduce their taxable rental income but only within their property portfolio.
This applies only to residential property.
