As a landlord in New Zealand's residential rental market, you may be overlooking a significant opportunity to reduce your tax burden.

Many landlords fail to take full advantage of depreciation claims on chattels—everyday items in a rental property that lose value over time.

Understanding how this process works and keeping track of your assets could mean substantial savings.

Here’s what you need to know.

What Are Chattels and Why Is Depreciation Important?

In the context of residential rentals, chattels refer to movable personal items that are not permanently fixed to the property.

These can include:

• Furniture: Beds, sofas, wardrobes, and dining sets
• Appliances: Refrigerators, washing machines, microwaves, and hot water cylinders
• Electronics: Televisions, coffee machines, and other small devices
• Fit-out items: Carpets, curtains, and blinds

Depreciation represents the loss of value in these assets due to wear and tear, usage, or obsolescence.

For landlords, depreciation is more than just an accounting tool—it’s a way to reduce taxable income.

By recognising the gradual decrease in value of these chattels, you can claim a deduction, effectively lowering the amount of tax you pay.

How Depreciation Claims Work for Residential Rentals

Unlike commercial properties, residential rental properties in New Zealand come with specific rules around depreciation:

• Building Depreciation Limitations: The structure of a residential property cannot be depreciated. However, chattels, which are items you provide to tenants for their use, are eligible for depreciation.
• Claiming Depreciation: If your rental property is furnished with items, you may be able to claim a portion of the cost each year. For example, if you provide a washing machine or a fridge, you can deduct the depreciation for these items from your taxable rental income.
• Depreciation Calculation: The Inland Revenue Department (IRD) has established guidelines and prescribed rates for calculating depreciation. These rates reflect how the value of each type of asset decreases over time, and they determine how much you can claim in deductions each year.
• Timing: It’s crucial to claim depreciation in the first year of ownership, as failing to do so means you cannot revisit past years for deductions. Once you opt out, you are deemed to have elected not to claim depreciation.

For detailed IRD guidelines, you can check the official link here.

The Bottom Line: Maximise Your Tax Savings

Depreciation claims on chattels provide a valuable tax deduction for residential landlords, acknowledging the natural wear and tear of everyday items.

By understanding what qualifies as a chattel and following the IRD’s guidelines, you can reduce your taxable income and manage your tax liabilities more effectively.

To take full advantage of these deductions, it’s important to maintain accurate records and stay updated on any changes to tax regulations.

As tax laws can be complex, seeking professional advice is always a smart move.

When done right, depreciation claims can be a powerful tool in your overall property management strategy.

Note: This article is for informational purposes only and does not constitute professional tax or legal advice.

At David Hooper Chartered Accountants, we help landlords maximise depreciation claims to reduce tax liabilities. Get in touch today at [email protected] or call 09 421 1635.