Owning a rental property is a popular investment for many Kiwis!
The rental income that they receive does need to be reflected in their IR3 return, but the good news is there are a tonne of expenses they can claim against this income and a lot of the time they will receive a refund - WooHoo!
The IR3 team will do most of the work in these cases, however we will go through what to do if a customer advises you that they have a rental property.
What do you need to do?
If customer indicates they have a rental property on their application form, set to ‘IR3 Rentals’ status and send notifications. Place a 2 week Client bring up date.
If the customer is on the phone or chat, ask the questions below, enter the answers into an Alpha note and advise customer we will be in touch via email/letter within 7 days. Set to ‘IR3 Rentals’ status, do not send notifications and set a 1 day NZTR bring up date.
- Has an accountant filed a previous financial year that included the rental? If so, please ask the customer to provide a copy of the previous return. They should have a copy, if not, advise them they will need to request a copy from the previous account.
- Is the rental property owned by the customer or by a company? Are there any joint owners?
- When was the property purchased?
- When did the property start to be rented out? (If renting was on and off, we require the periods the property was rented out)
- Is the property currently being rented out? If sold, we require the date it was sold.
A handy tip is to copy and paste the questions from OneNote and then just type your answers after each question. Always refer to the rentals guide when dealing with a rental query: IR3 Rentals Guide
Why do we need a copy of the previous return if they have filed a rental return in the past?
There are various methods of measuring depreciation. Once you have picked one method, you need to stay with it for all future returns. If the customer has filed a return in the past though an accountant, we need copies of the previous returns and statements from the accountant.
What are the fees for filing a Rental IR3?
The fee structure for Rental Property IR3 tax return filing is significantly different from the normal IR3 filing fee. These types of IR3 tax returns will be invoiced upon completion. If the customer is owed a tax refund, we will simply deduct our fee from this before paying it out. If the tax refund is not large enough to cover the fee then the customer will be invoiced directly for any remaining fees.
All Rental Property IR3 filing fees are quoted before any work is carried out.
- $350 for the primary rental property (this means that if 2 people own the property and both sign up with us, they will be charged $175 each). This is per tax year.
- $100 for each additional rental property.
- The IR3 team will discuss the fee, however you can advise the customer of the above fee structure.
Please ensure you educate customers that have the rental property with another person, that if the person also signs up with us, then they can split the full fee! That's $175 each, WooHoo!
Did you know? Handy tips for your reference:
- If you've only rented out your property for part of the year, you still have to declare income received for that period.
- You're entitled to claim expenses from when the property was first advertised until it was no longer available.
- Any insurance pay-out on a claim for damages or loss of your rental property is considered 'income'.
- The good news is that you can claim insurance premiums as tax deductible expenses every year!
- If you have recently left New Zealand and have left a rental property behind you will be required by law to file an IR3.
- If a customer receives board from individuals living with them in their property, this is NOT a rental property. To assess whether the income from boarders must be assessed for tax, please see http://www.ird.govt.nz/income-tax-individual/different-income-taxed/rental-income/boarders/incometax-boarders-flyer.html
What happens behind the Scenes?
Once you have provided the IR3 team with the answers to the Rental questions, the team can the assess if a return is required to be prepared.
The IR3 team will then contact the customer with correspondence detailing our fee structure and supply them with the Rental Summary Form which is a 3 page document.
The letter/email reads as below:
Thank you for providing the requested information regarding your rental property.
We have reviewed the information and we would be happy to prepare the returns necessary to reflect your rental income. As it is common for rental properties to run at a loss, this often results in a tax refund being available to the owner(s). To maximise your refund amount, we will ensure that you are claiming all possible expenses.
Our filing fee is $350 (inclusive of GST) for the primary property per financial year. If there is more than 1 rental property, each additional property will be charged at $100 each. This fee will be deducted directly from your refund unless you would prefer to pay the fee in advance. If for any reason we are unable to deduct our fee from your refund an invoice will be sent to you directly.
Please note if you jointly own the rental property with a partner, they will also need to complete an application in order for us to prepare their rental accounts. As our filing fee is $350 per rental property, this fee will be shared with your partner. Your partner (if applicable) can apply online at www.woohoo.co.nz, via our phone app, or we can post them an application at their request.
If you wish for us to complete the necessary returns involved with owning a rental property, please complete the attached forms and send these via your preferred method:
Freepost: Freepost NZ Tax Refunds, PO Box 28125, Beckenham, Christchurch 8242
Fax: 03 982 9505 (Attention – IR3 Division)
If you do not wish to proceed and would like to make your own arrangements, please let us know at your earliest convenience.
Rental Summary Form