Generally, the payments you get from renting out property are income. You need to pay tax on rental income in the year it's earned.
It's also important to understand your obligations for:
- GST (if you're renting out short-stay accommodation)
- rental property excess deductions
- keeping records
Who must pay tax on the rental income
Most people who earn rental income will pay income tax on it. This includes people who:
- have overseas residential property
- are joint owners of a rental property
- who are not New Zealand residents but earn rental income from their New Zealand properties.
Rental income and expense deductions
Generally, you work out what tax there is to pay by deducting your allowable rental expenses from your gross rental income.
Your total allowable rental expenses and total rental income you earn go in the tax return you must fill in every year.
The way you work out income and expenses is not the same for all residential property.
Check out tax by rental property type to see what to do for your property:
GST and renting out residential property
Residential rental income from renting out long-term is exempt from GST. You do not have to register, file or claim GST for your rental income or expenses.
Renting out short-stay accommodation a taxable activity for GST.
If you’re not already registered for GST, you need to:
- add your short-stay 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.
When you’re renting out for short stays and you're registered for GST you:
- pay GST on your short-stay rental income
- claim GST on your allowable rental expenses.
When selling the property or changing its use to non-taxable (eg long-term renting) you'll also have to pay GST on the sale price or market value.
Rental property excess deductions
Sometimes your allowable rental expenses for your residential rental property are more than the rental income. When this happens you're left with excess deductions.
Generally, you cannot offset excess deductions against other income in your tax return. An example of other income is salary and wages.
You’ll need to carry excess deductions forward into the next tax year you earn residential rental income.
Keeping rental records
Remember to keep records of income and expenses for 7 years.
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