New Zealand Tax Considerations When Buying Your First Commercial Property

21st October 2025
Stephen Ryan 

Disclaimer: This article is intended as a general guide in plain English. It does not constitute tax or investment advice. Every investor’s situation is unique, please consult your accountant before taking action. For tailored advice, specific to your needs, please contact us at info@stepaheadaccounting.co.nz. 

To keep things simple, some details have been generalised and technical points left out. None of this is financial advice. I'm an accountant, not a financial advisor so I'm only stating facts about tax, not advising you about how to invest your money. 

Introduction

Many Kiwi investors start their property journey in the residential market, but the move into commercial property offers an alternative opportunity with different tax-rules, structure options and planning requirements. 

If you’re about to purchase your first commercial investment property, understanding the tax landscape and structuring considerations from day one can make a major difference. Below we walk through key issues: ownership structure (including the “one company per property” idea), how to treat remuneration (director fees vs dividends), and other useful tax points.

Residential vs Commercial: a quick recap

I touched on the difference between residential and commercial investment property in New Zealand in last week's article, which you can read here: Navigating Investor Tax in New Zealand: What Kiwi Investors Should Know in 2025.

In short, commercial property doesn’t carry the same political stigma as residential rental properties so there are tax efficiencies that commercial property owners enjoy that residential property owners don't. This includes:

• With commercial property you can claim depreciation on fit-outs and 20% of the building's cost (subject to the New Assets Investment Boost)

• With residential investment property the bright-line test, loss ring-fencing, and interest-deductibility rules are relevant.

Commercial property offers a simpler tax regime from certain stand-points and more predictability from a political viewpoint, but it still requires careful structure and compliance. 

The rest of this article dives into what you need to think through before you buy your first commercial asset.

Structuring Ownership: Why “one company per property” is often recommended

Before buying a commercial property, you'll need to consider what entity type is best to hold it. Should it be held personally, in a partnership, trust, or a company? Most people choose a company, and, more specifically a separate company for each commercial property.

Why use a company structure at all?

• A New Zealand resident company is taxed at a flat 28% corporate tax rate on its profit..

• The company is a separate legal entity, so ownership of the property via a company helps isolate liability and assets from your personal name.

• The imputation (tax-credit) regime means that profits distributed to shareholders as dividends can carry imputation credits for tax already paid at the company level.

• A company has shares, allowing investors entries and exits without needing to sell the underlying property (though this can have tax consequences, so speak to your tax advisor first).
  
  

Why one company per property?

You decide to create a company to buy a commercial property. The property increases in value, and you sell it for a capital gain. You'd be forgiven for thinking that New Zealand doesn't have a broad-based capital gains regime, so time to cash in and forget about tax, right?

The issue is that the capital gain & cash belongs to the company, not you personally. So, how are you personally going to be able to spend the money? 

If you just transfer the money across to your bank account, you've created an interest free loan, which is a fringe benefit and runs into fringe benefit tax issues.

There is a solution here: company capital gains are allowed to be distributed tax free to shareholders on the wind-up of the company. 

So, if you have one property in one company, you can wind-up that company when the property is sold and you won't have an issue.

If you own multiple properties in one company and you sell one, the capital gain is essentially trapped in the company until the company is completely clear of all assets and liabilities, and can be wound up. 

Not only that but having a single property company allows you to better ring-fence risk (tenants, leases, liabilities).

Good structure from the outset reduces headaches later if you want to sell, re-organise, refinance, or bring in new investors, without having to sell the building as a whole. 

Directors’ Fees vs Dividends: Tax Treatment and Decision-Points

If you hold your commercial property investment through a company, particularly one in which you are a director/shareholder, you’ll probably wonder how to pay yourself: director’s fees, dividends, or a mix. Here are the key considerations:

Director’s fees

• Director fees paid by a company to its director(s) are treated as taxable income for the director, and a deductible expense for the company.

• If you are actively managing the property/company (e.g., you’re providing services), paying a director’s fee may be appropriate, and it means the director's fee is taxed at the director's tax rate.

• However, you must ensure that any remuneration is commercially reasonable, NZ’s tax law contains rules around close companies paying “excessive remuneration”, so watch out for this, particularly if you're planning on paying director's fees to a family member who doesn't actually do anything for the company.

• Director fees are subject to ACC levies.

• This can be an elegant solution to fairly reward an investor that does more work than the others in a syndicate scenario. For example, if one of the investors actively manages the property, then it's fair to pay them a commercially reasonable fee/salary equivalent to what you would have to pay a 3rd party property manager.
  
  

Dividends

• After the company pays tax at 28% on its profits, it can distribute dividends to shareholders.

• Dividends carry imputation credits (tax already paid by the company) which shareholders can use to offset their tax liability.

• Because the personal top tax rate is 39%, whereas a dividend comes with 33% worth of imputation credits and dividend witholding tax, receiving dividend income might cause a short-fall and therefore a tax obligation for high earning shareholders.

• Equally, lower income earners might not be able to take full advantage of the imputation credits.

• The company must meet the solvency tests before paying dividends (assets > liabilities, and be able to pay its debts as they fall due).

• Since dividends amounts are based on the number of shares each shareholder has, dividends are a reasonably straightforward way of distributing profit, especially passive investors.

Other Useful Tax & Structuring Considerations for Commercial Property

Some other additional points worth bearing in mind when buying your first commercial property:

GST considerations:

• You'll likely need to become GST registered. Most commercial property transactions are zero-rated for GST, which means you can't claim the GST when you buy the building, and equally you don't have to pay GST when you sell it.

• You're likely going to have to charge GST on rent anyway.

• If part of the property is mixed commercial/residential, the GST/mixed-use rules can complicate matters.
  
  

Depreciation and new assets deduction:

• Commercial properties allow depreciation of fit-outs and depreciable assets. New rules allow an upfront 20% deduction for new commercial assets. Be careful of depreciation recovery if you sell an asset for more than it's depreciated value. More info can be found here: New Assets Investment Boost
  
  

Interest deductibility / financing structure:

• Unlike the residential investment space (where interest deductibility was limited) commercial property allows interest deductions when the debt is incurred in deriving assessable income.

• But ensure the loan and financing structure is well documented (i.e., the loan is used for the property-business and interest expense is incurred for generating taxable income).

• If you're bringing in funding from overseas, consider gearing ratios, and the risk of thin capitalisation or excessive interest.
  
  

What are your intentions?

Before purchasing, think about what your intentions are. If you buy a commercial property with the intention of reselling, even if it's 50 years down the track, then the capital gain on sale will be taxable.

Will you bring in other shareholders/investors? Will you use this property as security to buy a different property?

Ensure your ownership company has clean separation of asset, liabilities, accounting records so that when you decide to sell the company or the property you avoid messy tax or legal risks.

Summary and Key Takeaways

Buying a commercial property in New Zealand is a compelling proposition for investors, and the tax regime is more investor-friendly than many residential investment options. However, that doesn’t mean tax planning can be ignored. Key takeaways:

1. Use the right structure: set up a New Zealand company with one company per property can isolate risk, and simplify future disposal.

2. Be aware that while there is no general CGT, gains from commercial property can still be taxable depending on intention, entity structure and cash extraction method.

3. Think carefully about how you will extract profit from the investment company: salary/director’s fees vs dividends both have pros/cons—ensure remuneration is commercially justified to avoid re-characterisation.

4. Stay on top of GST, depreciation, loan structure, and compliance obligations from day one.

5. Proper set-up, clean accounting and clear asset ownership will reduce risk and cost when you come to sell or restructure.

Next Steps

If you’re about to purchase your first commercial property, we recommend you:

• Engage with a tax advisor or accountant early before finalising the purchase structure.

• Identify optimal structuring (company vs other entity types), and distribution strategy (salary vs dividends)

• Ensure your shareholder agreements (if any), rental documents, leases and accounting systems are aligned with your tax strategy.

• Keep clear records from day one.

At Step Ahead Accounting, we specialise in investment taxation — helping investors nationwide make smarter, more compliant decisions.

Based in Dunedin, New Zealand, we offer free online consultations no matter where you’re based.
Get a step ahead by emailing info@stepaheadaccounting.co.nz