Categories
Rental Rental Blog

Student Loan Defaulters

Student Loan Borrowers can no longer Fly under the Radar

These days many Kiwis returning home from abroad no longer breeze into Godzone with the same confident swagger they once assumed. These are the original batch of Kiwi Student Loan borrowers, who dared to ignore their student loan repayment obligations, thus invoking the ire of the IRD. And these same Student Loan borrowers are now being caught in the net of the Internal Affairs tracking system, working in collaboration with the IRD.

A visit to our office from one of these edgy expats caught our undivided attention recently. In 2007, Tim (not his real name) left New Zealand on his OE, with the eager anticipation of a young man about to explore distant foreign enclaves. At the same time Studylink was transferring his student loan debt into the safe auspices of the IRD. Of course Tim became distracted by his new experiences and completely ignored the small debt he left behind him, married, settled down and started a family in the UK.

So, not long after Tim’s return to NZ this summer, just as he had done many times before, Tim’s parents received a concerning call from IRD enquiring as to the whereabouts of their son and requesting that he contact them regarding his unpaid student loan asap. This is the point where we became involved, as the horror of Tim’s repayment oversight became apparent and where Tim’s complacency rapidly switched into damage control and Tim anxiously looked around for an accountant to help.

What had transpired, on our investigation, was that the somewhat benign original debt of 30,000 that Tim left behind, had over the intervening years, spiraled to a not unsubstantial 117,000 due to the unpaid obligations and accrued interest and penalties. And it also transpired that Tim was faced with the prospect of just one month to arrange a repayment of $44,000 with the remaining balance to be paid back at the rate of $5,000 per year with a fairly negligible remission of $5,700. Or alternatively, that he pay in full, a lump sum of $98,000 and IRD would remit $18,500 late payment penalties. Unsurprisingly neither of these options appealed to Tim.

Also, if Tim didn’t comply, he faced the very real risk of arrest at airport departure, followed by court appearances, the drama of finding bail and incurring further penalties and interest. A hard-line law change in March 2014 had meant that student loan borrowers who were well behind on repayments and ignoring requests from Inland Revenue could potentially have an arrest warrant issued, preventing them from leaving New Zealand until they resolved their arrears.

The option of arrest at the border was modeled on a law that is used to capture people who default on child-support payments. It was designed to target the worst offenders and act as a deterrent to others.

An information-sharing agreement with the Department of Internal Affairs alerts Inland Revenue when defaulters apply for or make use of a New Zealand passport. In addition, an information-sharing agreement with Australia, expected to start this year, will allow for the exchange of contact details of Kiwi borrowers living in Australia.

In summing up, ignore your student loan debt repayments at your peril. Inland Revenue is looking for trophies and you could face having your name and face splashed across the media.

Defaulters can no longer fly under the radar and risk becoming student loan refugees that are scared to come home.

Categories
Rental Rental Blog

What happens when I rent my home to family members?

What happens when I rent my home to family members?

What are your tax obligations and entitlements when renting to family members and friends?

Sometimes when a property owner travels overseas, is on the move for a temporary period, or just wants to help someone to get on their feet, they rent their property out at ‘mate’s rates’.

This is commonly to a relative or friend of the property owner. Often this rent is for less than its true rental market value.

If the owner makes a net ‘profit’ from the property at the end of the year, the profit is taxable as part of the owner’s income. In this event there will be some tax to pay to IRD the following year.

However, if the owner makes a net ‘loss’ in this situation (because the expenses of the property are more than the reduced rental income) the owner won’t generally be able to offset the loss against their other income for tax purposes. So let’s say you are charging 80% of the market rent then you would only be entitled to claim 80% of the expenses.

The best approach when renting to family members is for the owner to obtain a ‘market rent appraisal’. The appraisal must relate to the period of time that you are renting, not before and not after. This can easily be done with a call to a real estate agent who’s experienced in this field. These appraisals are generally free. The weekly market value obtained from the appraisal is then used to calculate a new rental income total. This means that all expenses that meet the tax deductible criteria can be offset against the rental income. In some cases this may result in a tax refund or in others a small tax to pay on the income.

So if you’re heading off on your OE and renting out your home to friends or family remember to obtain a market rent appraisal so that you’re claiming your full entitlements and the tax man is well pleased.


RANDOM
Are you renting the property at fair market value?

If so, then there is no issue with renting the property to a family member.

If not, and you are charging below fair market rent, then there is an issue. Say you are charging 75% of the market rent, then you would only be entitled to claim 75% of the expenses.

When considering fair market value, sometimes your rent might be slightly less because your relative is doing extra things like gardening, or your rent might be slightly lower as you are not requiring a property manager.

IRD WEBSITE

If the property is rented out at less than market value

Sometimes a person who owns a rental property will rent it out for less than its true
rental value. This most commonly happens when a relative or friend of the property
owner rents the property at “mate’s rates”.

If the owner makes a profit from the property, the profit is taxable as part of the
owner’s income. However, if the owner makes a loss in this situation (because the
expenses of the property are more than the reduced rental income), the owner won’t
generally be able to offset the loss against their other income for tax purposes.”

Categories
Rental Rental Blog

Manawatu Property Investors Assn – VIP Speaker: Graeme Fowler

Manawatu Property Investors Association VIP SPEAKER NOTIFICATION

The MPIA VIP speaker for the 6TH MAY MEETING is Graeme Fowler. You may wish to “google” him for some insight into his experience with property investing.

We are very fortunate to have Graeme visit us.

There will be a change to the start time of this meeting as this will be a seminar type meeting starting at 7pm.

Graeme will present through to 9pm. It’s suggested you bring pen and paper should you wish to make notes.

It would be much appreciated to those attending the door that you arrive early, so please do not be late.

For current financial members there will be no door charge but please present your membership card to those attending the door, this will clearly distinguish members from visitors.

All visitors or non financial members will be charged $25.00 entry.

Please note your diaries: 7pm Start, 6th May, MPIA – Graeme Fowler presentation 7pm-9pm Supper to follow.

Venue: Palmerston North Bridge Club
Corner Cook and Cuba Streets, Palmerston North

 

Categories
Rental Rental Blog

Help is on the Horizon

Help is on the Horizon

See how Storey and Associates can provide assistance that’s above and beyond what other Accountants provide.

With the onset of winter looming and the certainty of cold nights and inclement weather, property owner’s thoughts will inevitably turn to the prospect of roof leaks, blocked spouting, rotting windowsills and inadequate heating. In addition, with the government’s proposed Rental Warrant of Fitness Scheme and the subsequent compliance requirements which could be just around the corner, rental property owners are faced with a myriad of small yet exasperating repairs and maintenance jobs that need a quick fix.

However the road to the local home handyman store is paved with good intention and a tight budget. What starts out as a quick and easy task with a short list of essential provisions quickly blows out to a mini building restoration programme and an accompanying hefty price tag.

But all is not lost as most of these costs, not necessarily all, can be claimed against your rental income and we can help you with determining your correct entitlements in what can be, to the uninitiated, the murky waters of the IRD Repairs and Maintenance rules. In addition, through our partnership with our trusted associates, we can assist you with obtaining significant discounts on some or all of the purchases made when lifting a rental property to a satisfactory standard. In some circumstances our associate may be able to facilitate lower lending rates for debts associated with the rental property.

For more information on how to obtain discounts on some household appliances and purchases from major brand retail outlets or to discuss tax entitlements, contact us via email or call Shane or Janine on 06 355 4647.

Categories
Rental Rental Blog

Deckchair Analysis of your rental property investments

Deckchair analysis of your rental property investments

Summer holidays can be an ideal time to think about how to improve your property investment returns and to review their suitability to your current personal circumstances.

Here’s a list of fundamentals that could benefit from a laidback summertime review.

Maintenance

Draw up a checklist of maintenance and improvements.

Summer lawn and garden maintenance; check for damage to decks, fences and general property maintenance such as blocked spouting and roof leaks. Inside, check for plumbing leaks and rotting window frames and sills.

Ask, will the property stand up to the scrutiny of the much anticipated, mandatory, Warrant of Fitness Scheme requirements for private rentals, which appear to be a matter of when, not if.

Review heating and insulation and consider replacing unattractive, worn and torn chattels, with new, which will attract and retain good tenants, avoiding downtime between tenancies.

Make a coffee date with your property manager to discuss and review the tenancies and current market value.

Financial Options

Have a broker review your insurance; shop around for better value insurance without sacrificing reliable, comprehensive cover.

Does the investment property still suit your current personal circumstances? Are you going overseas to live or work? Planning to retire? Have there been some financial changes that may give you more options to buy or sell?

Are you happy with the current yield? (Yield = annual rent received divided by the current market value). Alternatively, are you happy with the market trend for capital gain purposes?

Should you consider preparing the property for sale in time for the Spring/Summer real estate frenzy?

If you were to sell your property now how much tax do you have to pay on the possible depreciation recovery?

Review financing and consider a restructure of mortgages to take advantage of better interest rates and deals.

What is your LVR? (Loan-to-value Ratio – this is your loan limit divided by the current market value) Can you borrow more from your bank or should you consider an increase in your regular principal repayments to pay off the loan faster?

Are your bank loan terms as good as they could be? Should you continue to float or fix? What are the real estate market trends and can the RBNZ, political and media forecasts be relied upon?

Determine and create a schedule of when any fixed loans are due to mature.
Are there any break fees or penalties if you were to repay a fixed rate loan now? This can differ between banks.

When was the last time you had a one on one with your accountant to review your tax and debt structure?

Call us for a free one hour, no obligation consultation.

Categories
Rental Rental Blog

Don’t forget to claim the mileage on your car

Don’t forget to claim the Mileage on Your Car

You can claim Mileage on your car, for any trip that’s related to your rental property such as trips to and from the property (maintenance, inspections, showing tenants through etc), the Bank (to check the rent, arrange loans), Lawyer, Accountant, Hardware Store, Tenancy Tribunal, anything that directly relates to the rental.

The motor vehicle mileage rate is reviewed every year by IRD and the rate for 2014 remains at 77 cents a kilometre for both petrol and diesel fuel vehicles up to 5,000 km.  To claim mileage you are required to keep a log book with records of each trip and odometer readings.  Contact us if you’d like one of Storeys free log books.

You can choose to use the actual costs rather than the mileage rate. If you do this, you need to keep records to support any expenditure you claim.

You must record 3 months mileage every 3 years and claim the business percentage of all running costs.  If your total business related mileage is less that 5,000 km pa, it is usually easier just to claim the 77c per km – which covers all running costs and no tax receipts need to be kept.

The mileage rate doesn’t apply to motorcycles.

 

Storey’s Rental Folder 

We can provide you with a Rental Folder to store all your rental property paperwork in. This has been set up to ensure that all your paperwork will meet IRD audit standards. This Rental Folder is an easy way to keep all paperwork organised and minimise your time requirements when it comes to completing tax returns.  Using our Rental Folder and completing our checklists allows you to qualify for a $50 discount on your tax returns each year.

 

Categories
Rental Rental Blog

What happens when I sell my rental? What is Depreciation Recovery?

Depreciation Recovery (or Depreciation Clawback) occurs when:

  • You terminate the tenancy and stop renting
  • You move back into the rental property
  • The rental property is sold
  • The house burns down – And it happens!

It’s quite likely, with the current property boom, that when you sell your rental property it will be sold at a profit, when the sale price exceeds the original cost price.  Depreciation recovery represents the total amount of depreciation that many landlords would have claimed as a tax deduction on the building, in each prior financial year up until the 2012 year.   After which time, 0% deprecation has applied to building structures.  In the case of a capital profit the tax on this depreciation expense may have to be paid back because the property’s building value, has in fact increased, rather than depreciated.

So unless you can show the increase in property value was attributed to the land value, rather than the building value, you will have to recover and pay the tax back, up to the full amount of depreciation you have claimed previously.

Factors that will have an effect on this are things like Real Estate fees, Legal Fees, advertising costs on the sale, a change in land values, improvements/alterations, chattel values etc.

And no there is no truth to the rumor that you do not have to repay depreciation if you have owned the property for more than 10 years.  There is no time limit on depreciation recovery.

Categories
Rental Rental Blog

Welcome to Rental News Blog

Janine Wishnowshy - Rental Property SpecialistHi my name’s Janine; some of you may already know me through your contact with our rental team here at Storeys. Under Shane’s mentoring I’ve been working in the rental division of Storey and Associates for 6 years now, and during this time I have taken on the role of Rental Tax Manager.

Each month on this page I’ll be posting a Rental blog. Through this page we hope to keep you informed of any property market changes that may affect you and go over with you, some of those ‘fish hooks’ that you as landlords, or budding landlords, may encounter.

If you have any queries or specific areas of interest that you’d like us to cover, we’d love to hear from you, so please drop us a quick line via the administration email address on the front page of this website and we’ll do our best to answer your questions.

You may have also noticed the exciting new changes that we’ve introduced to our new look website.  Check out our Articles page with twice weekly news feeds or flick through Business Basics to see more of what the team at Storeys can do for you. If you want to keep up to date on this, ‘Like’ us on our Facebook page and you will be notified as each article comes through.

Although we’ve changed the way you navigate our pages, our strong branding remains the same, as does our ongoing commitment to you, our valued clients, with our guarantee of high quality, accurate and timely returns.

If you’d like to get in touch with me, please email me at [email protected] or call me at 06 355 4647 (ext. – 2013).