If you have rental property that is not used privately at all you can deduct expenses from the rental income you include in your tax return. Not all rental expenses can be deducted.
Expenses you can deduct
The expenses you can deduct from your rental income are:
- the cost of insuring your rental property
- the rates for the property
- payments to agents who collect rent, maintain your rental, or find tenants for you
- fees paid to an accountant for managing accounts, preparing tax returns and advice
- repair and maintenance costs
- fees for arranging a mortgage to finance the rental property
- fees for drawing up a tenancy agreement
- the cost of getting a valuation required to get a mortgage, but not insurance valuations
- the costs of taking legal action to recover unpaid rent
- the costs for evicting a tenant
- depreciation on capital expenses
- travel expenses for travelling to inspect your property or to do repairs
- legal fees involved in buying a rental property, as long as the expense is $10,000 or less.
From 1 October 2021 new rules limit the amount of interest deductions you can claim for your rental property in New Zealand.
For residential rental property acquired on or after 27 March 2021 interest is not deductible (unless an exclusion or exemption applies).
For residential rental property acquired before 27 March 2021 the ability to deduct interest is being phased-out over 4 income years. (Provided the loan was first drawn down before 27 March 2021 or was for the settlement of the property),
Interest on any new loans drawn down on or after 27 March 2021 cannot be claimed from 1 October 2021 onwards.
Read more information on interest limitation rules.
Expenses you cannot deduct
Expenses you cannot deduct from your rental income are:
- capital expenses
- the purchase price of a rental property
- the principal portion of mortgage repayments
- costs of making any additions or improvements to the property
- cost repairing or replacing damaged property, if the work increases property value
- real estate agent fees charged as part of buying or selling the property
- depreciation on the rental's land or buildings
- your time when you do repairs and maintenance work
- legal fees involved with selling the rental property (unless you’re in the business of providing residential rental accommodation).
The difference between repairs and maintenance and capital improvements
Repairs and maintenance restore a property to its previous 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 extra 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 spending on the property. If you are unsure about whether work done on your property is repairs or capital improvements, talk to a tax agent.
Body corporate levies
If your rental property is an apartment in a unit title development you may be able to deduct body corporate levies from your rental income. This depends on what the levied funds will be used for.
General levies like those used to pay for annual maintenance or administration (such as painting or insurance) will normally be deductible. Some levies may be raised to pay for capital improvements (for instance, those raised for a capital improvement fund). These are not deductible.
An amount levied may relate to both repairs and capital improvements. To claim a deduction in these instances you must be able to reasonably determine the portion of the levy that relates to repairs. You cannot claim a deduction for levies raised to pay for capital improvements.
GST and residential rent
GST is not charged on residential rent. This means you do not include residential rental income in your GST return even if you’re registered for GST.
When you deduct rental expenses in your tax return, use the GST inclusive amount.
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