When it comes to a property which is not your main home, or which is not your main home for the entire time you own it, it is in your best interests to keep records of any spending on the property. This is the case even if the property is not intended to be used as part of a business (such as a rental) and even if there are no plans to sell any time soon.
Why should I keep records?
In general, telling us that you have incurred expenditure, or holding a list of the expenditure, will not be sufficient. You will need to be able to show us evidence of the expenditure to be able to claim it.
Sales subject to the bright-line rule
If you sell the property within the bright-line period and need to pay income tax on the sale, the amount of tax you pay may be reduced by claiming for certain expenditure you have made on the property.
What records should I keep for all property?
Keep these documents in a safe place:
- the sale and purchase agreement for the purchase of the property
- the solicitor’s settlement statement for the purchase of the property
- receipts for any fees associated with the purchase of the property
- receipts for any renovations or capital improvements made to the property
- the sale and purchase agreement for the sale of the property
- receipts for any fees associated with the sale of the property.
What records should I keep for a rental property?
You may be able to claim expenditure you have made on a rental property if the property has been used to generate income and the expenditure is considered to be part of the holding costs for that property. If you are carrying on a business of providing rental accommodation, there are separate rules outlining records that you must keep. Failing to do so is an offence. Criminal penalties apply if you do not keep the books and documents as required by law.
If you intend to rent out a rental property, then it's also worth keeping records of:
- interest (although from 1 October 2021 new rules limit the amount of interest that you can claim as a deduction, with special rules around new builds)
- property managers’ / agents’ fees and commissions
- repairs and maintenance, including receipts for both labour and materials (Note: if you do any repair work yourself, you cannot claim your time as an expense, only the materials you purchase).
You cannot claim deductions for capital expenses, private expenses, or expenses that do not relate to your rental.
The difference between repairs and maintenance and capital improvements
Repairs and maintenance restore a property to its prior state and include work to fix or prevent damage to or deterioration of the property. The cost of repairs and maintenance on a rental property is normally deductible as an expense.
Some examples include:
- replacing a broken window
- repairing a hole in the Gib board
- repainting the house.
Capital improvements add to the property and enhance it beyond its original state at the time of purchase. You cannot claim for capital expenditure. Some examples of capital expenditure include:
- adding an additional room to the property
- installing heat pumps where none were present
- installing double glazing.
The difference between repairs and capital improvements can be complex. We recommend keeping all records of any expenditure on the property. If you are unsure about whether work done on your property is repairs or capital improvements, talk to a tax agent. That way, if needed, they can help you determine which is which if the need arises.