The Complete Beginner's Guide To Property Taxes In New Zealand

Date Jan 20, 2021
Blog category Kiwisaver
By Tina M.
Vbg4ngfrymujgaba0dxx

A Beginner’s Guide To Property Tax summary:

Owning a property takes a good amount of money and patience, especially when it comes to paying taxes. Of course, it doesn’t just end with buying a house — it follows regular upkeep and settling bills in order to sustain residence in your chosen property. 

undefined

Why is property expensive in New Zealand?

Since New Zealand has a lot of land to spare with only a few millions in population, buying land, let alone building a house, can already cost you so much. 

Today’s real estate ranges from NZ$300,000 up to around a million dollars depending on the location — Auckland with an average value of over $1 million on housing. 

Median house prices in major residential areas in NZ as of December 2020

Auckland increased by 2.4% totalling $1,142,700

Tauranga by 6.8% giving rise to an average value of $876,122

Wellington by 3.2% with an average value of $861,794

Hamilton by 2.3% with an average value of $674,562

Dunedin by 1.9% with an average value of $582, 269

Christchurch by 1.6% with an average value of $539,561

Source: CoreLogic House Price Index

Now that we’re on to another year, economists predict a surge of 16% in June 2021. Low interest rates are seen as a major factor in this inevitable increase, making it more difficult for Kiwis to settle into a home. One way to get through this is to find a mortgage plan that can adapt to your needs and income. You can choose which repayment schedule suits you best, leaving more room for savings and other personal expenses. 

Read: How To Buy Property In New Zealand: A Practical Guide

You don’t only pay for these billings, you also need to pay for local property taxes that are due at the end of the year. 

What is property tax in New Zealand?

NZ doesn’t apply taxes on residential property that you own except when you sell it in the market. What residents actually pay for are local property taxes, collected annually by local authorities. This form of property tax is used for local public services like maintenance of roads, rubbish collection, landscaping, and more, as mandated by the Local Government Rating Act of 2002.

No property tax on rent

You don’t need to pay taxes when you’re renting a place. Your landlord or property manager is the one to pay for taxes which should be declared in their income tax forms. 

Are rates tax deductible on an investment property?

An investment property is a place you decide to rent out or a house you intend to sell in the future. In other words, you expect to profit from either cases. For a rental property, you can deduct these expenses on your rental income tax:

  • Rental property insurance 
  • Property rates 
  • Agent fees (account manager, auditor etc.)
  • Repair and maintenance costs (non-deductible if repair increases property value)
  • Mortgage fees
  • Tenancy agreement fees 
  • Valuation fees required to get a mortgage 
  • Legal fees for unpaid rent
  • Eviction fees 
  • Mortgage repayment insurance
  • Depreciation on capital expenses
  • Travel expense as regards property inspection 
  • Legal fees of up to $10,000 or less

Compare the best KiwiSaver funds now!

NZ Tax implications on buying and selling property 

Buying and selling your property can bring a good return of investment in the long run. However, it’s not just about profit, this also includes paying the right amount of taxes each year. 

Buying property overseas has tax implications when you’re an NZ tax resident. All your “worldwide income” are taxable under the NZ tax rules. Non-residents are also required to pay a non-resident property tax or GST on their rental property in NZ, as well as tax residents owning property abroad. Tax Implications in NZ continues to apply so long as you’re a registered taxpayer in the country. 

If you want to sell property overseas, you can contact a tax agent for property tax assessment and other tax requirements. 

Bright-line Property Rule 

The rule simply imposes a tax on a residential home that you sell within 5 years after you bought it unless you fall under the following exceptions:

  • You declare the property as your family home.
  • You inherited the property.
  • You’re appointed as the executor or admin of a deceased estate.

Otherwise, you will need to pay an income tax on your sold property.

Learn more about it here: The Bright-light Property Rule 

New Zealand Tax Rates vs. The U.S. 

Both NZ and the US impose the same tax system in terms of property taxes. Tax rates vary according to the fair market value of the property as determined by the local city council. To make matters simpler for Kiwis, local councils integrate a New Zealand Tax calculator in their respective online pages so they can review their local property tax rates for the year. 

What are NZ Taxes in 2020? 

Generally, Kiwi citizens and businesses are only obliged to file and pay their Income Tax or also known as Pay As You Earn or PAYE and Goods and Services Taxes (GST). These taxes are used to fund healthcare, public transport and utilities, law enforcement, education, emergency services and so on. Individual and business tax rates differ depending on the income earned for that specific year.

Tax brackets in NZ

Monthly Income Tax Rate
Up to $14,000 10.5%
Over $14,000 and up to $48,000 17.5%
Over $48,000 and up to $70,000 30%
Remaining income over $70,000 33%

Income tax includes the following:

  • Salary 
  • Schedular payments
  • A Work and Income benefit
  • Earnings from self-employment
  • Bank account or investment interest
  • Rental money from renting out property
  • Overseas income

GST, on the other hand, has a fixed rate of 15% that’s added to the price of goods and services which includes items that you buy abroad. No GST is applied to residential rents, financial services, airfares and mortgage payments. 

Secondary Tax Rates in NZ

If you have other sources of income aside from your full-time job, you will need a secondary tax code to determine how much you should pay annually. You won’t need to pay for two separate taxes, you only have to take note of the given secondary tax code for proper collection. 

Annual Income & Tax Code  Tax Rate
$14,000 or less  10.5%
between $14,001 and $48,000  17.5%
between $48,001 and $70,000 30%
over $70,000 33%

Those with student loans are given different tax codes.

When is my tax due?

GST return and payment are due every 27th of the month. The rest of the key dates for your taxes can be found here.

Doing taxes should be easy if you live in NZ. You can always do your research for tax requirements or inquire with a tax agent for other concerns.

If you've made it this far, then you must already be interested in getting your own property. Make sure you do all the thorough research, even during your idle time! To help you with more funding, get a reliable KiwiSaver fund that works best for you, right here at CompareBear!

About the author
8erjedjlrissqrsudqtm
Tina M.

Tina M. is a content writer and an aspiring law practitioner. She mainly writes about real estate, finance, and investing. Ever the creative, she loves painting, home renovating, and getting meme ideas from reality TV.

Previous Article

How To Get The Most Out Of Your Internet Connection At Home

Next Article

The Best Smart Home Devices To Look Out For This 2021