An investment property is a residential property that you buy only to earn you rental income. It's a property you do not use yourself, for example a holiday home.
The rental income can be from either renting out long-term, or short-term through services like Airbnb.
Paying tax on your rental income
You must pay income tax on the rental income. To work out what you pay, you deduct your allowable rental expenses from your gross rental income.
For your investment property, you’ll need to use the actual cost method to see what tax you'll pay.
Actual cost method for working out rental income and expenses
Residential rental excess deductions
Sometimes your allowable rental expenses are more than your gross rental income. When this happens you're left with excess deductions. You'll have to carry these into the next tax year and deduct them when you earn residential income.
You cannot use the excess deductions against your other income, for example salary and wages.
There are rules about what you can do with excess deductions when you have more than one residential rental property.
Residential rental property deductions
GST and renting out investment property
Residential rental income from renting out long-term is exempt from GST. This means you do not register, file or claim GST for your rental income and expenses.
Renting out short-term is a taxable activity for GST.
If you’re not already registered for GST, you need to:
- add your short-term rental income to income from your other taxable activities
- register for GST if your total turnover is over $60,000 in a 12 month period.
If you’re renting out short-term and you're registered for GST you:
- pay GST on your short-term rental income
- claim GST on your allowable rental expenses.