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Is It Worth Keeping a Rental Property?

Is It Worth Keeping a Rental Property?

By Serena Irving

Residential property investors were targeted in the latest tax Bill before Parliament in December 2018. The Bill is likely to have the numbers to pass into Law, so if you have rental property or are considering investing, keep reading.

Figure 1: Photo by Alex D'Alessio on Unsplash

The proposal to "ring-fence tax losses" means that investors who previously offset rental losses against other earnings will no longer be able to do so. Rental losses of one property can be offset against other rental profits in the person's portfolio, or against gains from the sale of properties, or carried forward to offset future rental profits/gains.

The change will take effect from the start of the 2020 income year (1 April 2019 for most taxpayers). If you are considering any major repairs, we suggest that you complete them before 31 March 2019. The rule changes do not affect a person's main home or mixed-used properties such as beach houses, but do apply to overseas residential rental properties.

Under the bright-line property rules from 29 March 2018, people who sell a house in New Zealand within five years of buying it must pay income tax on any gains, unless it's their main home or another exception applies.

In addition, there are increased requirements on landlords for giving notice, limiting rent increases and improving living standards. It may be tempting for some landlords to consider selling their investment properties, even though there is a rental property shortage.

Without the tax refund, would you have enough funds available to cover vacancies or major maintenance work? Auckland Property Investors Association board member Amanda Watts said in her June 2018 blog, Removal of Negative Gearing, "My concern is that for some landlords this may mean the difference between doing or not doing maintenance if there is no immediate tax relief. They might have to postpone the repairs until another year, increasing the risk that the property will deteriorate and that vacancies might result." Source: www.apia.org.nz/apia-blog

There are a lot of factors to consider other than the tax. What are your long-term investment objectives? Could you get a better return in other investments? Could you pay down the mortgage to reduce interest costs? Could you increase rents to improve your income?

If you would like to chat about how the ring-fencing of tax losses will affect you, please give us a call.

Download a PDF version here or contact the author by email. Like our Facebook page for regular tips.

Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland. JDW is a professional team of qualified accountants, auditors, business consultants, tax advisors, trust and business valuation specialists.

Accounting For Success

Accounting for SUCCESS

"If you can't measure it, you can't improve it." - Peter Drucker

If numbers aren't your forte, you aren't alone. Thousands of NZ small business owners admit they struggle to understand profit & loss reports and balance sheets. Chartered Accountant Serena Irving says that is when they ask for help.

"Outsource what you aren't good at. Focus on your strengths." But if year-end accounts, GST and income tax returns are all you request from your Chartered Accountant, Serena says you are missing out on a valuable resource. See her hot tips below.

Pricing

"Don't compete on price, especially if you are creating something unique." Serena's cake topper client was struggling to get sales and profits. They discussed hourly rates and ingredient costs. They compared prices with competitors. They created set prices for standard icing toppers and increased her prices for one-off creations.

Key Performance Indicators (KPIs) and Dashboards

KPIs are your early warning systems for business health. It's difficult and costly to track them all. "We help you select and focus on the three or four which have the biggest impact on your business."

Xero and other accounting packages have basic dashboards. Chartered Accountants also create specific dashboards suitable to your needs. Using graphs and colour indicators, you get a snapshot of business performance.

Planning for Growth

Whether you are investing in people or capital to grow, your Chartered Accountant helps you manage it successfully. Serena's film editor client found spare capacity by re-organising his team's work and spacing out jobs more evenly. He grew his business without adding on more rent and wages costs.

Mentoring

A business issue arises with your customer or supplier. Your best friend is sympathetic but can't help. Your spouse suggests getting paid employment. Chartered Accountants can be mentors for those times. "We listen with understanding and experience. Other clients have worked through similar issues."

Cashflow Forecasting and Budgeting

Life and cashflow are hardly ever smooth. Your Chartered Accountant helps you through rough patches too. "A client owed over $300,000 income tax, GST and other taxes before he joined us. We set cashflow budgets, negotiated with IRD and arranged tax pool finance. He paid his tax bill off in 4 years."

Keeping Fees Down

If you already pay enough to your Chartered Accountant, chat with her/him about that too. Fix your regular coding errors. Negotiate an agreed fee with your Chartered Accountant so help is there when needed. Spread payments monthly to help cashflow.

Engage with your Chartered Accountant regularly and not just when your taxes are due. Get your Chartered Accountant working alongside you, improving your business success.

Download a PDF version here or contact the author by email. Like our Facebook page for regular tips.

Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland. JDW is a professional team of qualified accountants, auditors, business consultants, tax advisors, trust and business valuation specialists.

 

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