Depreciation costs - now or later?

Question from Shrak updated on 12th July 2015:

I currently have a rental property company with four rentals in it. One of the tenants has recently left one of the properties and I decided the property needs a lot of work done on it to make it ready for a new tenant. As such I have moved back into it for what i thought would be a few months but which is likely to extend to 18 months at the current rate.

My own house is now being rented (and tax paid on the profits). My plan is to rent the rental property out again once renovations are complete.

My question is whether I have to pay back the depreciation recovered now - considering I am not selling the property and intend to rent it again?

Our expert Mark Withers responded:

My advice would be for you to pay rent to the company for the period you are utilising the home personally but not seek to deduct any loss that may eventuate through this period. IRD have made it clear they will not accept Losses from LTC companies when the shareholder is also the tenant.

This will avoid the suggestion of a deemed disposal of the property from the tax base though and should allow you to roll the depreciation forward until an actual disposal occurs.

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.

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