Club Property

Tax Advantages

Gearing requires the payment of interest to the lender. Property also has other expenses that must be borne by the investor. These expenses are tax deductible – as they were incurred during the process of generating an income.

However any investment which incurs costs to run will also produce tax deductions

The tax advantage property has over other investments in New Zealand, is depreciation. Every physical part of the improvements of a property is falling in value (depreciating) every year. The roof – originally worth $20,000 – has lasted five years so far and will last another 35 years. Thus it has already lost $2,500 of its original value. It continues to lose $500 of its value every year. Thus the owner of the roof (and the rest of the property) makes a loss of $500 every year. This loss is tax deductible.

The curtains cost $3,000. They will need to be replaced every 10 years. So they depreciate in value by $300 each year. This is how much the property investor ‘loses’ each year.

Once a property is purchased by an investor, they have a chattels valuer come and inspect the property, and do a valuation. This tells them how much they can claim as depreciations each year. Since these losses are largely on paper, the typical property investor will have significant tax advantages for their ownership of the property.

A newer property will have greater tax deductions than an older property. An apartment – with its lifts, pool, gym and common areas – will have greater tax deductions than a house.

If an investor has enough properties, they may end up paying no tax at all.