Q

After going through some paperwork and a Tenancy Tribunal order relating to a previous tenant, I found some costs in the Tribunal order that didn’t match the documentation my former property manager sent me. The tenant was taken to the Tribunal for water costs for a sum that is incorrect. The tenant has since paid the costs.

Also, the tenant ended up in prison and didn’t attend the Tribunal hearing, so the property manager added a note in the order claiming the tenant did not return the keys for the slider door. But no key was provided for the door that the property manager claimed for.

This has led me to believe the property manager has claimed costs that are untrue and wrong. I have contacted the property manager only to be told to leave it as the tenant has already paid. I am willing to support the tenant on this. So what can I do about this situation? Is it possible for the tenant to dispute the Tribunal order?

A

These are questions you should raise with your former property manager. It is difficult for a tenant to appeal a Tenancy Tribunal ruling if they didn’t attend the hearing. However, if there was a reason for non-attendance that was beyond their control, then they can apply for a re-hearing on the grounds that a substantial wrong has occurred.

This must be done within five working days of a decision being issued. An appeal against a decision must be lodged within ten working days. Unfortunately, nine months after the hearing date is probably too late to apply for a re-hearing or to appeal against the decision. - Bernard Parker

Trust Transfer Benefits

Q

I have three houses: one owner-occupied and two rentals. One of the rentals is in a look-through company (LTC) and the other is jointly owned. Both rentals are positively geared. I now wish to transfer all the houses to a trust to take advantage of such things as tax benefits, asset protection and rest home subsidy.

I purchased both rental properties (nearly new) in 2015/2016, so they do not attract any tax on the capital gain, which is around $400,000. But depreciation recovery is a concern. Is it possible to avoid depreciation recovery - if I take the depreciated value of chattels as an initial value once transferred to the trust?

I got a valuation of the chattels for both rentals at the time of purchase. The original price of chattels is $70,000 and $62,000 for the LTC and the joint rental respectively.

But the opening values, as at March 31, 2020, are now $40,000 and $35,000. Also, I am not sure about the rest home subsidy if we have to move into a rest home? (I am 61 years old and earning $80,000; my wife is 62 years and making $36,000.)

A

The transfer to the trust occurs at market value, and that applies to the chattels as well. If the market value of the chattels is book value or below there won’t be any recovery of that depreciation. You will need to retain some evidence of how you have determined their market value, though.

One thing to consider now with a transfer to the trust is the bright-line test. Movements between associated entities are not exempt from bright-line so the trust would need to hold the rental properties for five years to ensure there is no income tax on the gains that accrue to it. That’s because the bright-line is reset when you transfer the properties to the trust.

Be careful also with your expectations around the rest home subsidy. Eligibility for this is set out in the Social Security Act and has means testing and income testing. Section 147A provides that where a person has deprived himself of income or property the person can be assessed as if the deprivation had not occurred. Deprivation includes gifts of $6,000 per year in the five-year period before application for the subsidy and gifts exceeding $27,000 in any 12-month period prior to the five-year period.

So making a lump sum gift of your properties to your trust will generally guarantee you don’t qualify for the rest home subsidy rather than the opposite. Remember, when the Government repealed gift duty they did not budget for any increase in rest home subsidies. This is why. - Mark Withers

Gains Or Yields

Q

I have $250,000 to invest in what will be my first investment property. I live in South Auckland and my goal is to have a good passive income in about 10 years’ time. Do you think I should buy a more expensive property in a more central Auckland suburb, or even Mangere Bridge, for capital gain? Or would it make more sense to buy two cheaper properties in South Auckland which would produce higher yields?

A

You have stated that your goal is around passive income and that the South Auckland properties will produce better yields. If this is your main priority, based on what you have said this may be the way to go. But make sure that you are calculating the comparison off net yields and also taking into account which option may require more maintenance to do a fair comparison. Also, ensure that you do have your goals correctly aligned with your investment strategy. - Kris Pedersen

Expensing Chattels

Q

I’m purchasing an investment property and want to know if the recent change to the low value asset threshold to $5,000 for this tax year would enable me to immediately expense any chattels purchased with the property that are valued at under $5,000? Or would I have to depreciate as normal? If I can expense I will end up with a loss for the 20/21 year so can this loss (given it derived from chattel write-off) be carried forward to subsequent years?

A

You are on the money here on both fronts - in terms of being able to write off the cost of low value chattels and, should that give rise to a loss, that the loss will carry forward (assuming you do not have another rental that produces a profit). But there are some details that are worth noting.

First, the $5,000 threshold applies to assets acquired on or after March 17, 2020, up until March 16, 2021. From March 17, 2021, the threshold drops to $1,000. Second, ideally you want to stipulate the cost of the chattels in the sale and purchase agreement.

Third, there is a proviso to claiming the full write-off (rather than depreciation) where you buy multiple assets from the same supplier at the same time. Put simply where those assets have the same depreciation rate, then you have to accumulate the cost of all of those assets and the cumulative cost has to sit below $5,000 in order for you to take advantage of the write off.

Finally, the chattels that you refer to have to be separate depreciable property. As you may be aware it can be a fine line between what constitutes a chattel and what is part of the building and not able to be depreciated. - Matthew Gilligan

Dealing With Rent Arrears

Q

Our tenant has not paid for six weeks and was in arrears before that. He has not been paid by his employer since lockdown and has not even been paid for his final fortnight of regular work despite his employer receiving the wage subsidy. He is receiving legal advice. WINZ will not help because he is technically still employed. We told him we would reduce his weekly rent during the lockdown by $80 to help but, to date, we have not received a cent. What are our options?

A

We encourage both tenants and landlords to talk through any changes in circumstances due to Covid-19. As you have already provided a temporary rent reduction, make sure you have a written agreement with your tenant on the rent reduction amount and when the reduction will end. Where possible, it might be worth discussing a rent repayment plan with your tenant.

Make sure any rent reduction and rent negotiation agreement you reach is recorded in writing and signed, and that both parties have a copy. You may wish to seal any agreement through our Fast Track service at www. tenancy.govt.nz/disputes/fasttrackresolution. Any agreement you reach only varies those specific terms in the tenancy agreement. Tenants and landlords’ responsibilities as agreed in the tenancy agreement remain. The tenant will still be liable for any rent arrears, including any agreed reduced rent payment. If you are unable to resolve your situation, you can apply to the Tenancy Tribunal for termination of the tenancy.

Due to the impact of Covid-19, temporary protections for terminations on rent arrears grounds were in place from March 23, 2020 to June 25, 2020. This meant a landlord could only apply to the Tenancy Tribunal if the tenant was at least 60 days behind in rent. From June 26, 2020 this returned to 21 days behind in rent.

The Tribunal will take into account fairness and whether the tenant is making reasonable efforts to pay the rent. There is government support available that you may wish to discuss with your tenant, including the wage subsidy extension and the Covid-19 relief payment. A tenant can also talk to the Ministry of Social Development if they require assistance.

Tenancy Services has information on rent negotiation and overdue rent, and Ministry of Housing and Urban Development provides advice on arrears. - Jennifer Sykes