Rental property income
Generally, the assessable income from a rental property is the difference between the actual rent the client receives and the allowable expenses.
Allowable expenses
When someone has a rental property and you are determining income the following expenses are considered allowable and can be deducted from the rental income:
- interest payments on money borrowed for the purchase of the rental property but not capital instalments for the reduction of mortgage
- rates
- house insurance
- agent fees and commission if a property manager or agent is used
- repairs and maintenance
- other fees for example bank administration fees for the mortgage, tenancy agreement costs, any valuation required for mortgage purposes, accounting fee's, etc
These are the only expenses that are taken into account for rental property income.
Verification of expenses is required, and should be kept by anyone renting a property for Inland Revenue.
Calculating assessable income from a rental property
To assess the income a client receives from the rental property, use the following chart:
Rental income assessment | Amount | |
Total rent received per annum | $ | |
Allowable expenses for property (per annum): | ||
Mortgage interest only | $ | |
Rates | $ | |
House insurance (excluding contents) | $ | |
$ | ||
Fees | $ | |
Less Total allowable expenses for property per annum | $ | |
Equals Client's rental income per annum | $ | |
Assessable rental property income per annum | $ | |
Only record the assessable rental property income where there is a profit.
When a client rents out part of property, only a portion of the expenses can be deducted from the total rent. For more information see:
If the rental property is set up as a business, assess the business income. For more information see:
Multiple rental properties
To assess the rental income when a client has more than one rental property, add all the rents together and subtract the total allowable expenses from all the properties. This will enable any loss on one property to be offset against the profit on another property.
Review of annual income or Income Related Rent
When assessing the rental property income at the clients' review of annual income, not all allowable expenses need to be confirmed if the recurring expenses (eg rates and insurance) have been confirmed at application and the client indicates they haven't changed. Expenses which may need to be checked are:
- those recurring expenses where the amount being claimed has changed considerably
- where the expense is for repairs and maintenance
Legislation
- income (definition) schedule 2 Social Security Act 2018
- Ranking of provisions in and outside this schedule clause 2, schedule 3 Social Security Act 2018
- Cash assets and income exemptions schedule 8 Social Security Regulations 2018
