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How to file your IR3 return if you have residential property deductions Video information

Audio and visual transcript

Scene 1

Visual

IRD logo is on screen, logo fades. The words ‘Kia ora’ appear in sky with cloud around it. The words ‘Residential property deductions also known as ring-fencing rules’ appears as we pan down into a suburban road scene with several houses.

Cars pass back and forth across the suburban scene in front of several houses.

Audio

Music

Soft easy-listening music plays in the background during the entire video.

Narrator

Kia ora, this video is going to take you through completing your income tax assessment for those that have property subject to residential property deduction rules.

You'll notice the IR3 income tax return includes fields for residential property.

Scene 2

Visual

A woman called Emilia appears in the scene and waves her hand

Panning up we focus on the houses behind Emilia, two key icons hover over the top of two house roofs

Suburban scene fades away to teal colour. Two key icons move to centre of screen with a title appearing above them. It says ‘Residential Portfolio’

Two key icons now move to top left corner of the frame. A yellow ‘residential income’ icon appears below the keys, with the words ‘Residential Income = +$50,000’.

A black ‘residential deductions’ icon appears next to the ‘residential income’ icon. The two keys slide across right till they are over the top of the black ‘residential deductions’ icon, the words ‘Total Deductions = -$60,000’ appears

The two keys fade away. A ‘CAP’ icon appears over top of Deductions icon, words ‘Excess Deductions = -$10,000’ appears next to it. Text underneath ‘Total Deductions = -$60,000’ disappear and is replaced by the words ‘Deductions claimed this year = -$50,000’. 

Just above - but in the middle of the ‘Residential’ and ‘Deductions’ icons a calendar icon appears with a lock underneath it, a line animates out from behind it - linking the ‘Residential Income’ & ‘Deductions’ visually.

Audio

Narrator

This is Emilia.

In the 2019-2020 year, Emilia owned two residential rental properties and earned a salary of $85,000.

She decides to treat the properties as a residential portfolio.

Emilia earned $50,000 in rental income from both the properties.

Emilia’s deductible expenses for both the properties totalled $60,000.

The new residential property deduction rules, cap deductions for an income year to the amount of income earned from residential property.

Scene 3

Visual

Entire scene slides down, now inside Emilia’s house. She’s working at a desk on the computer. A question mark appears above Emilia's head.

We switch to an over the shoulder view of Emilia, she’s on the Inland Revenue website, we see the cursor moving across the computer screen.

A workflow of questions appears for her to work out the right worksheet to use. The cursor moves through the question and arrives at ‘Worksheet A’, she clicks on this option.

Entire previous scene pans up. A new scene comes in from below - its the Worksheet A document with spaces to fill-in. She fills in the ‘Residential portfolio or Individual Portfolio’ space with a portfolio identifier ‘10A st and 2E st’. The first column of the worksheet enlarges - indicating the area to fill in. Step 1 and Step 3 are filled in the $50,000 and $60,000 respectively.

Audio

Narrator

Emilia decides to use the residential property deductions worksheets to help her calculate the amounts she needs to enter into her income tax return.

First, Emilia wants to know which version of the worksheet she should use.

Emilia visits the Inland Revenue website to download the Worksheet document.

Emilia answers the questions on the first page of the Worksheet document. The best worksheet for Emilia to use this year is Worksheet A.

Since Emilia is treating her two properties as a portfolio, she only needs to complete the first column of Worksheet A.

Scene 4

Visual

Far column enlarges. Step 2 and 4 are filled in with $50,000 and $60,000 respectively.

We pan further down the document, step 6 enlarges, she enters 0.00 into this step.

Step 7 enlarges, she enters $60,000. Shortly after, Step 3 re-enlarges again to show the relationship between these two steps.

Pan down document further, step 8 enlarges. She enters -$10,000 into step 8.

Step 9 enlarges. She enters -$0.00 into step 9. Step 10 automatically appears with the figure $10,000 in it. We pan down a fraction.

Step 10 enlarges showing the repopulated figure of $10,000. Step 11 enlarges also with the figure $10,000 in it.

Step 12 enlarges, she ticks ‘yes’ in the first column.

Step 12a enlarges, she enters $50,000 in this.

Step 13 enlarges, a pre-populated figure of $50,000 appears in this step.

Audio

Narrator

The columns on the right are the totals that Emilia will enter into her income tax return. The income and deductions from both Emilia’s properties are combined, allowing her to calculate her excess deductions for the portfolio rather than two separate properties.

Emilia does not have any excess deductions from a previous year, because this is the first year that the new rules apply. The 2019-2020 return has this field greyed out.

This means that Emilia’s total residential rental deductions is the same as the expenses amount, she entered at step 3.

At step 8, Emilia calculates the net income or net loss for her portfolio. This year, Emilia has a net loss for the portfolio of $10,000.

In Emilia’s return, she enters 0 as her net residential income because the amount of deductions she can claim is limited to the amount of income she earned from her residential properties.

The amount of the net loss for Emilia’s portfolio becomes her excess deductions carried forward to the next income year.

Step 12 has different instructions depending on whether your property has a net loss or a net profit.

Since Emilia’s portfolio has a net loss, she answers Step 12a.

This gives Emilia her residential rental deductions claimed this year.

Scene 5

Visual

Entire form slides up and out of frame. A big tick appears on screen as well as a small circle in the top right hand corner with Emilia in it. A purple button appears ‘IR3 Income Tax Return’ -  she clicks the button.

Button disappears and her Income Tax Return form appears on screen, we slide down to question 22. Question 22 enlarges, she ticks the ‘yes’ box and ‘Portfolio’ box.

Emila fills out question 22A-F using her worksheet.

The filled out form slide up off screen and a circle with the myIR website link appear.

Audio

Narrator

Emilia is now ready to fill out her IR3 income tax return with her residential property information in myIR.

Emilia sees that there is a new section in her return for residential property.

Using the amounts from the far-right column of her worksheet, Emilia completes question 22 of her return.

Emilia is filling out a paper return but she can also file this return in her myIR account.

Scene 6

Visual

Calculation icons from the first scene reappear. They are from left to right; the black deductions icon with an arrow heading right (underneath it says ‘Excess Deductions = -$10,000’), in th centre is the yellow Salary icon with the words ‘Salary = $85,000’ (a white tick appears over th etop of this). Finally on the far right, a yellow Taxable Income icons appears with the words ‘Taxable Income = $75,000’. The arrow is sliding across from left to right. Arrow then stops and a cross appears over her salary.

Last two icons and their text disappear. A new ‘Residential portfolio Future Income’ icon appear in the middle, with a tick over it.

The ‘Residential portfolio Future Income’ icon slide left, replacing the one on the right. the text below it changes to ‘Residential Portfolio Net Income = $10,000’. A crossed out Excess deductions icon appears with the text ‘Excess deductions = $0’ underneath. These then both fade away.

Audio

Narrator

Last year, Emilia would have been able to use the excess deductions against her other income, like her salary. This year, Emilia cannot do that.

She must carry forward the excess deductions from her portfolio and use them only against income from that portfolio in future income years.

If Emilia’s portfolio had earned net income this year, Emilia would not have had any excess deductions to carry forward.

Scene 7

Visual

The ‘Residential Income’ icon appears again on the left with the text ‘Residential Income = $50,000’ underneath. And then in the middle the deductions icon with the text ‘- Total Deductions of $40,000’ underneath. A net income icon appears on the far right with ‘Net Income = + $10,000’ underneath. All icon and text elements fade away leaving just Emilia in her bubble on the top right.

New Tax Return form slides in with adjusted figures to match the new scenario for question 22 A-F.

Emilia in her circle moves into the centre of the screen, this circle enclosure expands to reveal the entire home office scene. Three circles pop up in different colours the first - ‘Worksheet A notes’, the second ‘IR3 Guide’ and lastly the third ‘IR264 Booklet’. Entire scene fades away, suburban scene fades back in and we slowly pan back into the sky to where we started.

Audio

Narrator

Let’s say her income was the same, but she only had a deduction of $40,000, giving her a net income of $10,000 from her residential portfolio.

Her return would look like this:

Emilia’s situation is pretty straight forward but if she had any questions she could check out the notes to the worksheet, the IR3 guide or the Rental Income booklet (IR264).

Scene 8

Visual

Panning through the sky with clouds a url appears ‘www.ird.govt.nz/ring-fencing’ this fades and is replaced ties the IR logo.

Audio

Narrator

If you still have questions around the residential property deduction rules, we suggest talking to a tax professional.