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COVID19 and a new Tax Year

Posted 6/4/2020

Well, a lot has changed in the 2 months since we last emailed. We hope you enjoy reading this update from the comfort of your own home. If you are out there being a part of our essential services, stay well!

In this update, we will go through the numerous changes to rental legislation that have happened as a result of COVID-19, We cover off some things you can do during the lockdown, and updates to our Rental Coach courses.

In the news - COVID-19 Edition

The news has been a bit strange over the last wee while, as there is a whole lot less news happening! However, things are still happening in the world of rental properties. Here is what has changed:

Rent Freeze

There is a freeze on all rent increases for the next six months (from 26th of March 2020).

No Terminations

There are to be no terminations of tenancies during the lock-down period (Level 4) unless by agreement. This is to prevent a tenant being evicted and have no house to go to during a period when no-one should be leaving their house. Tenants also have the ability to revoke any outstanding termination notices during the lock-down period. Tenants can still terminate as normal (3 weeks notice).

Low Value Assets Threshold

Another change is the threshold amount where assets purchased with a low value could be claimed as Repairs and Maintenance instead of being recorded as an asset. The amount of the threshold changes depending on when you purchased the asset.

  • For assets purchased before the 17th of March 2020, the threshold applicable was $500.
  • For assets purchased during the 12 months from the 17th of March 2020 to the 16th of March 2021, the threshold is $5,000.
  • For assets purchased from the 17th of March 2021 onwards, the threshold reduces down to $1,000. It will remain at this amount for future tax years going forward.

What this does is turn some items that potentially would be a capital purchase, into an immediate deduction. An example could be a heat pump with installation. If the total cost if $2,800, as long as it purchased before the 17th of March 2021, then the whole item can be classified as Repairs and Maintenance.

Note however, there hasn't been any changes to the "Ring-fencing of Losses" rules. So, if as a result of doing the extra R&M you get a big loss, you will need to use the "Excess Deductions" to offset another profitable property, or use in a future tax year.

Provisional Tax level changed

If you end up with a tax bill at the end of the year, then at certain levels you might have to pay Provisional Tax (which is pre-paying next year's bill). Previously, if you had a bill of over $2,500, you had to use Provisional Tax. Now, this has been increased to $5,000. This allows taxpayers to potentially have a bit more cash flow during this year rather than pre-paying next year's tax.

For a write-up of the changes to rental properties, see the Tenancy Services website here. Radio New Zealand also did this very good Question and Answers article on the changes.


Getting your records together

Now can be a really good time to collate all of your end of year tax records and get them in order. The tax year has just finished, so you need everything from 1st of April 2019 through to the 31st of March 2020.

However, it could also be a really good idea to think about the system you use for your records. Is it a bit of a mess? What could make it better?

Here are some ideas:

  • Keep a separate box or folder for each tax year. Group similar invoices together - for example: Rates invoices, Insurance, Repairs & Maintenance.
  • Keep all your rental property transactions in a separate "Rental Bank Account". This will help you identify all the paperwork required easily.
  • Download your bank statements (digitally) each year. If you were ever to leave your current bank, you would lose access to these bank statements. Download them each year and keep a folder on your computer.
  • Download your bank account as an Excel file: This is handy if you want to run a simple cashbook in Excel. Download the tax years' worth of data and then 'Sort' by payee to obtain the total of that expense. These totals can then be used in the Rental Worksheet (as provided by the Rental Coach course).
  • Scan or photograph all your receipts. Keeping them digitally can be great, especially if you pay for small items using your own credit card. Keep the receipts to make sure you are able to claim all the expenses you are entitled to.
  • Back-up! Make sure you have a back up plan somehow - is it on the cloud, a USB stick, or multiple computers? If there is only 1 copy of the file, then you have been warned!

Some people spend a little time each month working "on" their paperwork for their rental property so it isn't too big a job come April each year.


The 2020 update of Rental Coach is now live!

We have been busy and have now updated everything for the 2020 tax year. If you have a current subscription, then all these updates will automatically be done when you login next time.

If you were a previous user and wish to do a discounted renewal, then visit this page to get yourself back on (renewals from $20).

If you would like to upgrade your plan, visit the upgrades page and pay the difference to take a step up with the information in the Rental Coach course.

For more information on what each version has, see here.