If you are thinking of buying a rental property, there are many things to consider. Here’s some information to help you.
If you are buying a residential property you do not need to be GST registered as residential rental is an exempt activity. If you are buying a commercial property, GST registration is required prior to the purchase and GST returns will need to be done on a two monthly or six monthly basis.
There are a range of ways to set yourself up as a rental property owner: If you do it personally, you get all of the profit or loss on the property. As a Trust, the Trust owns and receives the income or loss on the property , any income can be distributed to beneficiaries, losses will be held in the Trust to be used against future income. Another option is a Look Through Company whereby the company owns the property and income or losses are transferred to shareholders based on their percentage of shareholding. In a partnership the income or losses are distributed based on partnership splits ( for example, 50/50).
What about financing? For interest on a loan or mortgage to be deductible against the rental income,the loan/ mortgage must be used to buy, repair or improve the property.
Who will look after the property? You can look after the property yourself – this means things like organising tenants, ensuring rental is paid, making regular visits to the property, dealing with any repair issues and ground maintenance – or you can get an agent to look after all of this for you and they will charge you a fee for doing so based on a percentage of the rental received each month. If you decide to use an agent, it would pay to review various agents to get the one who you feel will look after your interests the best.
Normally if you buy a rental property you will be buying it as a long term income source. Note with the Brightline test the property needs to be held for five years – if sold within that time, any profit will be taxed.
There is no depreciation on buildings claimable any more but depreciation is still available on Chattels . When buying you could get the property and chattels valued and then depreciate the chattels to help minimise the taxation and increase cashflow. Note when the property is finally sold in most cases the depreciation will be recovered and will become income in the year of sale. Valuit is a company that specialises in this .