Structures
One rental is a tax return with rules of its own. Several is a business. The rules here change more often than any other part of tax.
What it is
Rent is income, and it is taxed wherever the property is owned — in your own name, in a company, or in a trust. Owning it personally is the most common and usually the simplest; the alternatives buy flexibility and cost administration, and which is right depends on far more than tax.
What you can deduct is narrower than most owners assume. Rates, insurance, repairs, property management and accounting fees are ordinary. Improvements are not deductible at all — they are capital, and the line between repairing something and improving it is where most of the argument happens.
Two rules have moved repeatedly and are worth checking rather than assuming: how much of your interest you can deduct, and the bright-line period that can tax a sale. Both have changed more than once in recent years, and which version applies to you can turn on the date you bought. Residential rental losses are also ring-fenced — they carry forward against future rental income instead of reducing your salary.Two things are worth getting right rather than assuming: what you can claim while you hold the property, and what happens to capital gains tax when you sell. A discount applies to assets held longer than twelve months, and how the property is owned decides who gets it.
None of that is a reason to avoid property. It is a reason to have someone who has looked at this year’s rules rather than the ones that applied when you bought.
Typically Anyone with a rental — one property, a portfolio, or a holiday home let out part of the year.
Every year
The obligations that come with this structure, in the order they tend to catch people out.
Rental income and expenses go into the owner’s return — your IR3, or the company’s or trust’s return if it is held there.Rental income and expenses go into the owner’s return — yours, or the company’s or trust’s if it is held there.
Repairs are deductible now; improvements are capital and are not. Getting this wrong in either direction is the most common rental adjustment there is.
Carpet, curtains, appliances and heat pumps depreciate separately from the building. A chattels valuation at purchase is usually worth many times what it costs.
Residential rental losses do not reduce your other income. They carry forward against rental income, so the loss is not lost — it is deferred.How much of your interest and holding costs you can claim depends on how the property is used and who owns it. Worth confirming each year, not once.
Whether a sale is taxed turns on the bright-line rules and on your intention when you bought. Ask before you list, not after.Capital gains tax on the sale, and the discount for assets held longer than twelve months. Ask before you list, not after.
Rental accounts, the return, and the two questions that actually cost money — what you can claim while you hold it, and what happens when you sell. Asked this year, against this year’s rules.
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Plenty of people run more than one of these at once — a company and a trust, or a job and a rental. We handle the set, not the piece.
Freelancers, contractors, tradies and anyone trading under their own name.
Read it →Founders, family businesses and anyone who has incorporated or is about to.
Read it →Two or more people in business together — trades, professional practices and couples running something jointly.
Read it →Family trusts holding a home, a rental, a business or investments.
Read it →Ten minutes to start. No credit card, and we will tell you if you are better off elsewhere.
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Not sure which structure you are in, or whether it is still the right one? Ask.
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