Residential rental properties
Whether you’re thinking of buying a rental property, renting out your current property, or thinking of selling it, you need to understand your record-keeping and tax obligations.
See Rental property video series to watch other videos in this series.
When you obtain a rental property, it’s important to start keeping records straight away. To work out your tax correctly, you’ll need records of who owns the property (you may co-own it with other people), the date and costs of buying it, and the ongoing rental income and expenses.
You must include your rental-related income in your annual income tax return. If you lease residential accommodation, you are not liable for GST on the rent you charge.
You can claim tax deductions for many of the expenses associated with the property. Some can be claimed immediately, and some are claimed over a number of years.
When you have work done to your property, take note of whether the work is a repair or an improvement. This is because repair costs are deductible in the year they occur, but the cost of improvements (capital costs) become part of the cost base, which is used to work out your capital gain or capital loss when you sell the property.
You may make a capital gain or capital loss when you sell (or otherwise cease to own) a rental property. You pay capital gains tax on your capital gains. If the property is new residential property, you may also be liable for GST on the sale.
If you have a holiday apartment or unit that is part of commercial residential premises, it is treated like other residential rental properties. You’re not liable for GST on related income and can’t claim GST credits for related purchases.
Non-rental investment properties
If you have an investment property that is not rented or available for rent – such as a holiday home, hobby farm, or another dwelling you choose not to rent:
– the property is subject to capital gains tax in the same way as a rental property
– you generally can’t claim income tax deductions for the costs of owning the property because it doesn’t generate rental income
– you may be able to include your costs of ownership in the property’s cost base, which would reduce any capital gains tax liability when you sell it.