A "non-boring" Accountants view (maybe I have stretched the truth a little there) from Ivan Martinovich of Our Accountants
So you are thinking that life is going good and the only thing that make it complete is buying a rental property or two that someone else can help pay off the debt (plus the added bonus of being able to spend some quality time with your favourite Mortgage Broker and Accountant) – sounds like you are on the road to living the dream!!
Before you go ahead and sign up for the perfect rental property there are a couple of things to consider from an accounting perspective.
Without over simplifying too much, these four things need to be covered off before you make the final call to buy a rental property.
Ownership Structure
There are 4 options for you here;
- Own in your own name/s – cheapest and easiest option, long-term may be the most costly
- Ordinary Company – great option if you understand how a company works, but not great if you are looking at owning more than one rental property
- Look-Through-Company – was the flavour of the month before IRD changed the rules around losses from rental properties. Good if wanting to own a number of rentals
- Trust – was generally not a good option for rental ownership, but with the change in the IRD rules this is now a potential option. The most costly to set up but if you already have a trust it could be perfect
Minimising Tax
A good accountant will help you set up a structure and use some other techniques to minimise your tax. Some of the tools at our disposal to minimise your overall tax includes;
- Moving personal debt (no tax advantage) to being business debt (tax advantageous)
- Depreciation on houses is no longer allowed by IRD, however some of the items that are part of the rental can be depreciated and the cost of a valuation means that there will be some chattels that we can depreciate, and save you money in the long run
- Ensure that the ownership split (if more than 1 owner) takes advantage of the most effective tax rates
Funding the Rental
Talk to your favourite Mortgage Broker!! No-one is in a better position to help you understand your options, and know what the banks are offering at any one time, than a quality Mortgage Broker (Mortgage Brokers are nearly as cool as Accountants).
This step is important when looking to move personal debt to business debt, so make sure your Accountant and Mortgage Broker are talking at this point.
Future Proofing
Have a good idea (or best practice – a Business Plan…) about what you are wanting the future to look like for your rental portfolio. By understanding where you are wanting to head to, along with your business and lifestyle goals, it can create some real clarity to help with points 1 -3.
To be fair…. I probably should have started with “Future Proofing” in the Number 1 spot!!
I am more than happy to have a chat with you about everything above in a complimentary “Proactive Accounting Meeting”, just give me a call on 027 5582 495 or email me ivan@ouraccountant.co.nz
Ivan has 10 years + experience as a Chartered Accountant (CA). Starting off in the CA environment, before spending some time in the public and private sector, Ivan has moved back into the CA world.
He started Our Accountant in 2017, with his specialty being Corporate and Multi-Entity structures. More specifically, what are your options, which one works best, how to safe guards your assets, maximise your tax benefits and makes things as simple as possible for you.