Residential Rental Property Chattels – Depreciation Rate

Following the issue of Interpretation Statement 10/01 Residential Rental Properties – depreciation of items of depreciable property (IS10/01), the IRD has issued a general depreciation determination to provide a new list of the “Residential Rental Property Chattels” industry category. The new asset classes include; air ventilations systems, awnings, portable dehumidifiers, lawn mowers, mail boxes and stereos.

For a complete list of the asset classes please refer to the determination at http://www.ird.govt.nz/technical-tax/determinations/depreciation/depreciation-deter-dep80.html

Look Through Companies and Interest Deductibility

The Inland Revenue Department (IRD) has recently published their view surrounding the issues with interest deductibility and ‘Look Through Companies’ (LTC). The question involved an LTC that was previously a loss attributing qualifying company (LAQC). The LAQC acquired the taxpayers family home as a rental property. The transfer was done at market value. The property was rented out to a third party on an arm’s length basis. The taxpayer owns 100% of the shares in the LAQC. The LAQC borrowed from a bank to fund the purchase. The taxpayer used the funds from the sale of the property to purchase a new family home. The LAQC then became an LTC.

In IRD’s view, if all that has changed is that the LAQC has become an LTC, then the interest deductions previously allowed will continue to be allowed subject to the limitations in section HB 11 and HB 12 of Income Tax Act. It is the IRD’s view that an owner can have more than one capacity and the effect of section HB 4(1) is to treat the owners as carrying on the activity of the LTC and not the LTC itself. It is not intended that the owner’s actions are substituted for those of the LTC.

For more information please refer Questions we’ve been asked: General Issues on the IRD website at http://www.ird.govt.nz/technical-tax/questions/questions-general/qwba-1103-it-ltc-interest-deductibility.html