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Commercial Property Guide — Tax Rules for Business Premises and Investment in NZ

commercial property taxation in New Zealand. The guide covers the tax treatment of the commercial property rental income, the GST rules, the depreciation of the commercial buildings and the fit-out, the interest deductibility, and the disposal rules.

Commercial Property Taxation

The commercial property rental income (the "business premises" and the "industrial property") is taxed differently from the residential rental income. The key differences include: (a) the interest deductibility — the full interest deduction is available for the commercial properties (no interest limitation applies), (b) the loss offset — the commercial rental losses can be offset against the other income (no ring-fencing), (c) the GST — the commercial property rent is generally subject to the GST at 15% (the tenant can claim the input tax if the tenant is the GST-registered), (d) the depreciation — the commercial buildings are depreciable at 2% per annum (the straight-line method), and the fit-out and the chattels are depreciable at the rates from 10% to 50%.

Unit Titles and Body Corporate

The commercial properties held under the unit title are subject to the Unit Titles Act 2010. The body corporate levies (the "operational fund" and the "long-term maintenance fund") are deductible as the expenses. The GST treatment of the body corporate levies depends on whether the body corporate is the GST-registered. The disposal of the commercial property may trigger the tax on the gain if the property was acquired with the intention of the disposal (the "intention test") or if the vendor is the property dealer, the developer, or the builder. See our Rental Income Guide → for the general rental rules.