Offsetting rental income costs against maintenance agreement

Question from Geert updated on 18th November 2010:

My tenants and I agreed on less than market rent in exchange for upkeep and maintenance of the property (this is part of the tenancy agreement). How will the IRD handle this case? Their Rental Income form (IR264.pdf) states on page 12 that "...the owner will not generally be able to offset the loss against their other income for tax purposes." My view is that the actual rent plus the work the tenants do reflects market rent. I don't have any expenses for maintenance of the property and gardens.

Our expert Jeff Montgomery responded:

I suggest you contact Inland Revenue to discuss what options are available to you regarding your tax requirements in this situation. Their contact details are www.ird.govt.nz or 0800 227 774.

The Residential Tenancies Act (the Act) defines rent as including any money, goods, services, or other valuable consideration in the nature of rent, paid by the tenant in respect of their tenancy agreement. It may be worthwhile determining at the start of the tenancy what the total rent is worth, how that will be apportioned by way of rent payments, and specify the amount that will be in consideration for the added responsibilities the tenant will acquire.

Also worth noting is that landlords are responsible for maintaining the premises in a reasonable state of repair, and tenants cannot waive their rights under the Act. If a tenant has agreed to take on the added responsibility of maintaining the premises (in exchange for a reduction in rent) but then changes their mind, it would be helpful to have agreed beforehand what the full rental should be.

The Department of Building and Housing provides information and guidance on building law and compliance, services including weathertight homes, and advice for tenants and landlords.

 

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