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Last Updated: Oct 15, 2007

Rental income tax is high in New Zealand

Effective Tax Rate on Rental Income
Monthly Income US$1,500 US$6,000 US$12,000
Tax Rate 1.7% 9.6% 10.4%
Click here to see a worked example
Source: Grant Thornton New Zealand Disclaimer

INDIVIDUAL TAXATION

Nonresident individuals are liable to pay tax on their New Zealand-sourced income.

INCOME TAX

Taxable income is computed by deducting income-generating expenses, tax credits and tax rebates from the gross income. Income is then taxed at progressive rates.

INCOME TAX RATES

TAXABLE INCOME, NZ$ (US$) MARGINAL TAX RATE
Up to 38,000 (US$28,965) 19.5%
38,000 - 60,000 (US$45,735) 33% on band over US$28,965
Over 60,000 (US$45,735) 39% on all income over US$45,735
* Exchange rate as of 16 October 2007: 1 USD = 1.31192 NZD (New Zealand Dollars)
Source: Global Property Guide

Rental Income Tax

Various expenses can be deducted from gross rental income, such as:


  1. Rates (municipal land tax) and insurance
  2. Interest payments on mortgage to finance the rental property
  3. Agent’s fees for maintenance, collection of rent, and search of tenants
  4. Repairs and maintenance that is not considered as capital improvements on the rental property
  5. Motor vehicle expenses
  6. Legal fees incurred in arranging mortgage and drawing up tenancy agreements (legal fees related to the buying and selling of the property are not deductible)
  7. Accountant’s fee for the preparation of accounts
  8. Depreciation allowance to cover the cost of wear and tear and general ageing of the building and its contents. Assets, which include building, capital improvements and chattels (furnishings, etc), can be depreciated through either diminishing or straight scale. Buildings can either be depreciated by 4% (diminishing line) or 3% (straight line). Assets can be depreciated individually or in a group (pooled). Pooled assets can only be depreciated using the diminishing method, using the lowest depreciation rate in the group.

The expenses listed below are considered non-deductible:


  1. Purchase price of a rental property
  2. Capital part of any mortgage payments
  3. Interest on money borrowed for some purpose other than financing the rental property
  4. Capital improvements, costs of making any additions and improvements to the property
  5. Real estate agent’s fee and legal fees incurred as part of the buying and selling of the property

CAPITAL GAINS TAX

Gains resulting from the sale of real property are not normally taxed in New Zealand.

They are taxed at normal income tax rates only under the following circumstances:

  1. the business of the taxpayer consists of dealing in such property
  2. the property was acquired for the purpose of selling it
  3. and the profits or gains were derived from the carrying out of an undertaking scheme for the purpose of making a profit.

PROPERTY TAXATION


Rates (Land Tax)

The amount of rates depends on the municipality where the property is found, and may be levied either on the annual value of the property (if it is rented), or the capital value, or land value, or the area of the property. Rates may normally be passed on to any tenant given certain conditions.

 

New Zealand - more data and information

Your Comments

posted by Ernst | 2008-05-14

Dubai

"CAPITAL GAINS TAXGains resulting from the sale of real property are not normally taxed in New Zealand.They are taxed at normal income tax rates only under the following circumstances: 1. the business of the taxpayer consists of dealing in such property 2. the property was acquired for the purpose of selling it 3. and the profits or gains were derived from the carrying out of an undertaking scheme for the purpose of making a profit. ">> Reading this, I wonder who assesses whether I bought my property for the purpose of making a profit or otherwise. Is there a consensus in past rulings whereby owners that kept their properties for a minimum duration are exempted from this taxation (on the basis that it was not a speculative purchase, whether the owner rented the property out or not)? Ernst

posted by our Editor: Matthew Pollock | 2008-05-14

I would imagine the latter, but to be certain you must consult and accountant

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