Welcome to New Zealand Property Investor, skip to content.

Landlords’ top 10 tax deduction mistakes

For the average Kiwi landlord, tax deductions are one of the easiest taxation pitfalls – which costs are deductible?

It’s not always simple and it’s not always the common sense answer. Louise Richardson asks three accountants who specialise in property investment which mistakes are made most often.

1. Cutting corners on advice

Bargain basement accounting packages and DIY kiwi ingenuity may seem like a great way to save money, but you’ll never see how much money you’re missing out on. Trying to do your own taxes on your properties is a serious mistake – tax experts spend hours every week keeping up to date on the latest legislation and interpretations; there’s no way you can come close to their exacting standards.

2. Assuming all interest payments are deductible

“Some people think they have a god-given right to claim on all the interest they incur,” jokes Mark Withers, partner at Withers Tsang & Co and author of Property Tax – A NZ Investors’ Guide.He saysthere must be a nexus between the loan and the income-earning capacity of the property: it’s not enough that you’ve borrowed to buy the rental, the loan needs to be tied to that specific property.

3. Claiming for ‘maintenance’ when it’s really improvements

Bought a ‘do-up’ and spent $20,000 getting it to a reasonable standard before renting it out? That is not tax deductible maintenance expenditure. Nor can you claim a tax deduction on putting the house back in order after a tenancy and before you sell it, despite the fact the tenants have caused the damage. You can only claim repairs and maintenance costs if they were carried out when the tenants were living there or the house was available to rent.

4. Trying to claim for every little item

It’s common to see clients “go over the top”, says Dreyer, trying to claim for food, personal items and home office expenses. If you have only a small portfolio, and especially if you have a property manager looking after it for you, it’s unrealistic to imagine you’re spending all day in your home office.

“Maybe on a large business, where you had 20 properties,” he says, “but if you’ve only got one rental the Inland Revenue might wonder what’s happening in that office and start looking further.”

5. Putting your structures in the bottom drawer

Canny property investors usually operate several different types of entities. These may includepersonal ownership, look-through companies, limited companies and trusts.The wrong structure can cost you thousands of dollars in additional tax payments, while the right structure can maximise your profits and make the difference between positive and negative cashflow.

To read the full top 10 head to your local bookstore, or read the digital edition.

Get the digital issue to read more. Subscribe to get great stories like this delivered to your doorstep every month.