At TED Property Management, we believe that successful property investment starts with having access to the right information. Whether you're a first-time investor or building a substantial portfolio, understanding the opportunities available to you can make a significant difference to your long-term returns.
One area we often find investors are unaware of is the potential value of a chattels valuation. While many property owners understand rental income, expenses, and general tax obligations, the purpose and benefits of a chattels valuation are not always well explained during the investment journey.
As part of our commitment to supporting and educating investors, we regularly work alongside trusted industry professionals to help provide valuable insights on topics that can impact investment performance.
With this in mind, I reached out to Anthony Appleton-Tattersall from AAT Accounting. Anthony is a highly respected property accountant with extensive experience helping property investors understand and maximise the financial benefits available to them.
I asked Anthony to share his expertise and explain what a chattels valuation is, why it matters, and how investors can potentially benefit from obtaining one.
We hope you find the following article informative and helpful as you continue to grow and protect your investment portfolio.
Over to you Anthony........
Anthony here from AAT Accounting - When you buy a rental you’re buying three distinct components:
Land – The solid surface of the Earth not usually covered by water
Dwelling – floor, walls, roof, wires, pipes, tiles, toilet…
Chattels – A variety of stuff inside (and around) but not part of the dwelling. Carpets, curtains, heat pumps, dishwashers, light fittings, rangehoods, carport slab, fences, and so on. Separate from the building structure, and crucially that gives them a different tax treatment in terms of depreciation.
As my high school Accounting teacher used to say, “Depreciation is the systematic allocation of the value of the asset over its useful life”. More plainly, it means you claim the cost of an item over the lifetime it is used. Unlike rates or repairs to a window which are claimable when you incur the cost, a heat pump or carpet lasts several years so you spread the tax claim over that period.
But there’s a big issue in here. Since about 2011, IRD says buildings depreciate at 0% - that is, not at all. So there’s a big value in splitting out the chattels to depreciate separately. The idea is straightforward: these items wear out over time, and that gradual loss in value can be recognised as a business expense. Depreciation reduces the amount of rental income you're taxed on. Over a few years, those deductions add up to a meaningful reduction in your tax bill.
The problem is, when you buy a property the purchase price covers the whole package; land, building, and chattels together. If you don't separate out the value of the chattels specifically, you miss out on the claim for your chattels. Some valuation reports put a generic $5k or $15k to chattels as a group, but there’s no factual basis to this figure, and it wouldn’t stand up if IRD were to question it. The result is either no claim at all, or a much smaller claim than you legally could, without any proper basis to back it up.
A professional chattels valuation fixes this. A valuer physically visits the property and systematically identifies and values every depreciable item, from the heat pump to the handrails to the driveway. Each item is given a market value at the time of purchase, and each has its own IRD-approved depreciation rate. You’re then given a detailed report for your accountant to use for depreciation calculations in your tax return.
The total depreciable amount can be anywhere from “oh that’s more than I thought” to “wow, seriously?”
And it can mean big savings. The cost of the valuation is usually more than repaid in tax savings within the first year. It would be rare to see less than $10,000 of tax savings over the lifetime of a property ownership. More expensive properties with higher end fitout can mean drastically higher chattels figures, while tired properties with old fittings come in at the lower, end – still worth the report though.
But does it make sense for you?
The answer here is almost always yes. The following situations are the major exceptions, where I wouldn’t bother:
- Buying a house for sale (property flipping) – you hopefully won’t hold long enough to get any depreciation claim
- Buying a house then gutting it with a major renovation – you will already have all the actual costs for the new chattels, no need for a valuer
- Buying a house that is likely to be tax-negative for many years, potentially the whole time you own it – the depreciation will just carry forward as increased ringfenced losses (more on that in a future post) so you’re paying for a valuation now, and not seeing the tax savings for years or maybe ever.
- Already owning a rental for several years and didn’t get one done at purchase – most of the depreciation happens in the early years, so if you’ve already owned it a while you’ve probably missed out. A year or two it’s likely still worth it, more than that just keep it in mind for the next purchase.
Other than the above, chance are high you would benefit from getting a valuation done. At AAT Accounting we are property specialists and see dozens of these reports every year. We recommend Valuit as expert chattels valuers who are the best at what they do.
Get it done soon after settlement. The valuation reflects the condition of the chattels at the time of purchase, so it's most accurate and defensible when done close to that date. That said, no issues with getting it done any time before your first tax return for that property is filed, and even a year or two after that though the benefit reduces.
If you'd like to make sure you're claiming everything you're entitled to, AAT Accounting specialises in exactly this. We have been working with rental property owners across New Zealand for over a decade and handle all the admin of compiling and filing your tax returns. Getting this right from the start is a lot easier than correcting it later. Of course, we can help with that too, if needed!