Rental property Archives - GECA Chartered Accountants

Deductible Expenses for Residential Investment Properties

Giles — Wed, 19 May 2021 01:22:00 +0000

This post is by Sheral Reddy, an chartered accountant and tax specialist at GECA Chartered Accountants. Call Sheral now for tax advice on your circumstances.

Deductible Expenses for Residential Investment Properties

Since our last blog on ‘Tax Changes for Residential Rental Properties’ in April we are getting a lot of clients wanting to know what can be claimed as an expense against the investment rental properties.

Some clients are thinking about doing major renovations since they are unable to deduct interest expenses going forward and are assuming that all the renovation costs will be deductible for tax purposes.

It is important to be aware of the capital versus revenue nature of renovation and repairs expenditure when expensing (or not) these types of costs.

The following are some of the expenses that are deductible for tax purposes against rental income from residential properties:

Accounting Fees
Body Corporate Fees
Depreciation on capital items or chattels such as heat pumps, appliances, etc
Insurance
Legal Fees
Mortgage repayment insurance
Property Manager fees
Rates
Repairs and maintenance costs
Travel Expenses when traveling to inspect or do repairs on the rental property
Valuation expenses if required for obtaining a mortgage
Water Rates
Interest on mortgages will only be deductible for properties purchased after 27 March 2021 till 1 October 2021 unless its newly built property. Properties purchased prior to 27 March 2021 will have the interest deductibility phased-out over 4 income years.

For clients wanting to do major renovations, the difference between what is considered as repairs and maintenance and capital expenditure can be complicated.

Costs of making any additions or improvements to the property are not deductible. For example, adding a new bathroom or additional room to the property will be considered as improvements and capital in nature. However, this also captures the costs for repairing or replacing damaged property, where the repairs will increase the value of the rental property.

Getting these deductions wrong can be expensive to resolve, in time, taxes and penalties. Better to get it right in the first instance.

Please contact your GECA Advisor on 0800 758 766, if you would like to discuss any major renovation projects you might be undertaking and whether the expenses will be deductible for tax purposes as repairs or maintenance or considered as a capital expenditure.

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Xero Tips and Tricks: Keeping track of different rental properties

Giles — Wed, 13 Nov 2019 20:05:03 +0000

When you have only one property to rent out it is relatively easy to separate its accounting from your other income and expenses. But the more rentals you have the more you need to know about each property performance in order to grow your wealth further.
Also, according to the new ring-fencing losses legislation, investors have to keep track of profitability of each property separately if they elected to use the new rules on a property-by-property basis. You can read more on ring-fencing losses here.
Using Xero can help you to keep an eye on income and expenses related to each of your properties. For that, you need to set up tracking categories.
1. In the Accounting menu, select Advanced.

2. Click Tracking categories.

3. Enter the desired name of your tracking category, say, Rentals or Properties. There is also an option to enter each property name under this category.

4. Click Save.

5. Now when you reconcile your transactions you can assign payments to a particular property. The category name will appear under Why on your bank reconciliation dashboard and you can scroll down to choose a property that the transaction relates to.

6. Sometimes you can have only one receipt for expenses that relates to different properties. Say, you went to a shop and grabbed a new lamp shade for your three-bedroom house rented for a long term. You also bought a new iron for your Airbnb apartment and a kettle for your holiday home.
There are a few ways to attribute the expenses to the properties in Xero. If you use Xero Bills you can create a new bill for these expenses and while reconciling you can match that bill against the bank payment. Another easy way is to enter the receipt details at the moment you reconcile transactions in Xero. For that:

– Go to your bank account in Xero. Find the transaction then click Add details.

– Then, you can allocate expenses to your rentals. Check whether the amounts in the receipt or invoice are GST exclusive or GST inclusive.

7. Now you can track your properties performance. Click Accounting, Reports and More Reports under Financial. There, you can see Tracking Summary.

If you want to have an easy access to Tracking Summary in future click star. This report will appear under the Accounting tab.

8. Click Tracking Summary. Choose the date range and the accounts groups you want to review. Say, you would like to know the amount of expenses incurred in relation to each property.

9. Click Update. Now you can see your Expenses Summary. Unassigned expenses are those that haven’t been assigned to any property probably by mistake or because these expenses are overhead.

10. You can also see financial statements relating to each property. Probably the most interesting report for you is Profit and Loss. For that go to Accounting, then click Reports, then Profit and Loss.

In Profit and Loss choose the Date Range and click Report Settings.

11. Under Report Settings you can choose the rental you would like to look at.

12. Your Profit and Loss for the selected date range is now displayed.

13. Please note that the reports generated are based on the transactions you have coded while reconciling. These reports are for your reference only and may be subject to year-end adjustments

The Author.
The article is written by Valiya Gafarova, Certified Xero Adviser and Accountant at GECA Chartered Accountants. If you want to know more on rental property accounting feel free to get in touch with us on 0800 758 766.

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Airbnb Hosting: Nine Tax Basic Rules You Need to Know

Giles — Tue, 13 Aug 2019 02:06:00 +0000

Airbnb Hosting: Nine Tax Basic Rules You Need to Know.

There are a few things about New Zealand tax you should be aware of when you enter into Airbnb, BookaBach or other peer-to peer renting. The following may help you when speaking to your accountant or may provide you a general guidance if you are preparing your tax return on your own.

Here are the nine must-know tax rules for peer-to-peer hosts:

The money that you get from renting out your room, house or a bach is an income. You need to keep track of any income you receive in relation to your property short-term renting.
From your income, you can deduct expenses that relate directly to your rental income such as advertising and cleaning. To be able to deduct expenses you will need to be accurate in keeping all receipts.
If sometimes you or people associated with you privately use the property you will need to figure out how many days you used it and how many days your property was unused during a tax year. You will need this information when determining how much of your expenses you can deduct for income tax purposes. Depending on your circumstances you will use either mixed use proportion or standard income tax rules.
You are not allowed to claim depreciation on your property. However, you can still claim depreciation on assets used in your rental activity such as beds or bigger appliances. The threshold for fixed assets is over $500 for assets purchased prior to 17 March 2020. The threshold is over $5,000 from 17 March 2020 till 16 March 2021 and then will be permanently over $1,000 from 17 March 2021 financial year.
If you manage your AirBnB property from your home you may be eligible to claim your home office expenses against your rental income.
If your AirBnB income before deductions is $60,000 or higher in the last 12 months (or you suggest that it will be $60,000 or more in the next 12 months) you will need to register for GST and file GST returns. You will be able to claim GST from your purchases. There is always an option to become GST registered voluntarily whatever your turnover is. Read more information on tax consequencesof becoming GST-registered.
From 1 April 2019 ring-fencing losses legislation was introduced. In practice, that means if you make an overall loss from renting your property you are not allowed to offset your loss against your other income. There are a few exceptions from this rule for example, if your property is a mixed-use asset. However, for the properties to be considered as a mixed used asset, the property needs to be also used by the property owners for their own private use instead of being rented out for short term rentals 100% of the time. You can read more on the ring-fencing losses here.
Also, you need to know that some properties cannot be sold tax-free. For determining your tax obligations, you need to take into consideration the date when the property title was transferred to you. From a legal point of view, this is when you became the owner of the property. If it happened before 1 October 2015, you will pay tax only if you bought the property with an initial intention to resell it. If the purchase took place from 1 October 2015 to 28 March 2018 inclusive you will be subject to tax if you sell the property within two years after the purchase date. From on or after 29 March 2018 the five-year period applies. These rules are called bright-line test.
In some New Zealand cities such as Auckland and Christchurch hosts are required to pay commercial rates instead of residential rates. A peer-to-peer host needs to do their own research on local rates applicable to their situation.

The Author.

The article is written by Valiya Gafarova, Certified Xero Adviser and Accountant at GECA Chartered Accountants. If you want to know more about tax consequences of having an Airbnb or other peer-to-peer rental feel free to get in touch with us on 0800 758 766.

Please note that this blog post should be considered as a general overview but not as a tax advice relevant to your situation.

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