How tax works for rental income

The moment rent starts hitting your account, it also enters the tax system. Knowing how these two worlds connect is what separates confident landlords from confused ones. ​

New Zealand's property tax system isn't designed to be intimidating, yet the details can get tricky. The good news is once you understand the basics, it becomes much easier to stay on top of things and keep more of what you earn.​

Understanding how much you get taxed on rental income makes it easier to manage your investment confidently and avoid surprises when it's time to file.​

In New Zealand, the tax on rental income depends on who owns the property.​

Rental income is taxed at the owner's marginal tax rate, as part of their annual income tax return. If the property is jointly owned, each owner returns their share of the rental income and expenses.​

Rental profit (or loss) is part of the company's income and is taxed at the company tax rate (currently 28%). ​

Rental profits form part of the trust's income. Broadly speaking, the tax amount depends on whether income is retained by the trust or distributed. For trustee-retained income, the trustee tax rate is 33% when trustee income is $10,000 or less, and 39% when it's more than $10,000 (with some exceptions). If the income is distributed to beneficiaries, it’s taxed at their personal tax rate.​

Important: Non-resident withholding tax (NRWT) does not apply to the rent you receive. However, if you have a mortgage with an overseas lender, NRWT or Approved Issuer Levy (AIL) may apply to the interest paid on that loan.​

GST treatment depends on whether the property is residential or commercial, and how it is used. ​

A common question landlords ask is “does rent include GST?” and for long-term rentals, the answer is no because this type of rent is GST-exempt. This means you do not charge GST on the rent you receive. You also can't claim GST on expenses related to providing that residential rent. This applies to standard tenancy arrangements where someone lives in the property as their home. ​

If you provide short-stay accommodation such as Airbnb, Bookabach, or serviced accommodation, this is treated differently from long-term renting. ​

This type of activity is considered a taxable supply for GST purposes. If your total turnover from all taxable activities exceeds $60,000 in any 12-month period, you must register for GST. ​

The platform you use to list the property may be required to collect and return GST to IRD on your behalf. You can read more about it in our article about GST and digital marketplaces. ​

Commercial property rentals (e.g. offices, shops, warehouses) are generally GST-taxable if the owner is GST-registered. In that case, you charge GST on the rent and claim GST on related expenses. When seling the property to another GST-registered person for a taxable activity, the sale can be zero-rated for GST.​

Every property costs money to run, but not every cost counts when it comes to tax. The IRD only lets you claim expenses that are directly related to earning rental income. It's quite simple - you can deduct what keeps your property running, not what improves its value. ​

Think of deductible expenses as the daily running costs of being a landlord. You can generally claim:​

You can't deduct anything that makes the property better than it was before as they are considered improvements. Renovating a bathroom, building a deck, or replacing an entire fence are examples of capital work. They add long-term value, so they're treated differently for tax. (You may still be able to claim depreciation, so please discuss it with your accountant).​

How to tell the difference​

A good rule of thumb:​

When in doubt, note what changed and why. Those often help your accountant or the IRD if questions come up later.​

Most disputes around rental property deductions come down to evidence. Keeping receipts, invoices, and brief descriptions of each expense makes it far easier to prove what you've claimed. A tidy paper trail can be the difference between a smooth return and an IRD query.​

When you borrow to buy or improve a rental property, the interest you pay on that loan is usually tax-deductible. The rules have changed several times in the past, but they are now stabilising. ​

From 1 April 2025, most landlords can claim 100% of their interest costs as a deduction. This follows several years of phased deductions, which were reduced under earlier housing tax reforms. ​

There are some exceptions. You can't claim interest on:​

Keeping loan and usage records is important, since IRD checks how funds are used. ​

If you sell a residential property within a set period, you may have to pay income tax on any gain. This is known as the bright-line test, and it currently applies if you sell within 10 years of purchase (for new builds, the bright-line period is 2 years).​

If the sale is taxable under this rule, you may be able to claim back interest that wasn't previously deductible while you owned the property. ​

The bright-line test is designed to identify short-term property speculation. It's one of the most important areas where interest deductibility and property tax rules overlap. ​

Sometimes your rental expenses, such as mortgage interest, maintenance, or property management fees, can exceed your rental income, creating a loss. In the past, landlords could offset these losses against other income such as salary or business earnings to reduce their total tax bill. ​

That changed with the introduction of the loss ring-fencing rule. Today, if you make a loss from your rental property, you can't use it to reduce tax on your other income. Instead, the loss is "ring-fenced," meaning it's carried forward and can only be used to offset future rental profits or taxable property gains. ​

This rule is designed to prevent property investors from using rental losses to lower their income tax from unrelated work or business activities. It doesn't mean the loss is gone. It simply delays when you can use it. ​

For example, if you made a $10,000 rental loss this year, you can't claim it against your salary now. But next year, if your rental makes a $15,000 profit, you can use the $10,000 carried-forward loss to reduce your taxable rental income to $5,000. ​

If you own multiple rental properties, losses and profits across them are combined, so the total result is what determines how much can be carried forward. ​

At the end of each tax year, landlords must file a rental property tax return declaring all income and expenses. Supporting records must be kept for seven years. ​

It's worth consulting an accountant to help you stay compliant, avoid common mistakes, and identify deductions you might otherwise miss.​

Understanding how tax on rental property works doesn't have to feel daunting. Think of it as learning the framework that supports your investment. When you stay organised and ask questions early, tax becomes another tool for managing your rental and not a source of worry.​