TAX ON AIRBNB INCOME NZ

Oct 22, 2023
airbnb room

IS THERE TAX ON AIRBNB INCOME IN NZ?

People wonder: “Is Airbnb income considered rental income?” The answer is yes: There is tax on Airbnb income in NZ. So this means that you will be required to file income tax returns to account for the Airbnb® income that you’ve received. The same goes for bookabach™ and so on. It is all taxable.

The good news is: you can claim expenses. How much you can claim depends whether it is a room in your house that you are renting out, or whether it is a separate property. If separate, and you (or friends and family) stay there at times, then you may have to apply the Mixed Use Asset (MUA) rules.

HOW MUCH CAN YOU EARN FROM AIRBNB BEFORE TAX?

4K. THAT’S IT.

$4,000 per year. That’s right. Four grand. If your holiday home revenue is less than $4,000 a year, then you don’t have to declare it in income tax returns or in GST returns. However, you can’t claim any expenses.

2ND: NO TAX ON AIRBNB INCOME NZ IF…

Also, you don’t have to declare your Airbnb income if you make a loss (expenses exceed income), and your holiday home income before expenses is under 2% of the property’s rateable value. For example, your holiday home’s CV is $575,000. You make $10,000 from Airbnb income and your expenses are $11,000. Your net income is -$1,000. Because the gross income of $10,000 is less than 2% of the CV, you don’t have to declare this loss to IRD.

3RD SITUATION

Lastly, if you have “quarantined expenditure.” That is when you have losses held over to a future tax year to offset against the asset’s future profits. NB: You cannot use the quarantine rules with some assets.

HOLIDAY HOME TAX RULES FOR MIXED USE ASSETS

Holiday homes used privately and empty for 62 days or more

You have to use the mixed-use asset rules if your holiday home both:

  • earned you rental income (public use) and was also used by you or an associated person (private use), and
  • was vacant for 62 days or more
    • being “available” for use does not count

POINTS TO NOTE RE MIXED USE

It is worth noting that when working out mixed use, the rules are a bit tricky, as follows:

  • If you stay in the property, it is private use
  • If your family stay in the property, it is private use
  • If you rent it out to a friend and it is less than full market rent, it is private use
  • If you stay in the property but it is for the purposes of repairs, it is public use

This is not an exhaustive list nor does it cover every nuance of the law, but you get the idea. It is messy.

Holiday homes not used privately or rented out for more than 62 days/year

You must use the actual cost method to work out what tax there is to pay on rental income from your holiday home/ Airbnb income if it either:

  • earned you rental income and was not used by you or an associated person, or
  • was not vacant for 62 days or more.

GST WHEN YOU’RE RENTING OUT YOUR HOLIDAY HOME

If your annual revenue (that is, income from bookings before costs) is more than $60,000 per financial year, then you will need to register for GST. This is true even if you are just renting out a room in your house! Note too that the key figure is not “income after expenses.” It is revenue: total Airbnb/bookabach etc rents received in a financial year, excluding expenses.

For example, you realise that on average you bill about 5-6k per month to paying guests. You don’t receive that much of course. By the time rates, insurance, interest on the mortgage, cleaning, maintenance, supplies, travel and other costs are taken out, you are only getting about 3k in the hand per month. However, it is not what you receive that counts in determining if you need to register for GST. It is what your rent income before expenses is that counts.

This is not measured by the calendar year: it is measured by the financial year i.e. the 12 months running from April to March. If you are billing 5k or more a month on average, and you are doing that for 12 months, and that all falls within one financial year, then you will exceed the GST threshold.

VOLUNTARY GST REGISTRATION

Sometimes, even if your annual revenue is under this figure, it is advantageous to GST-register. For example, you are buying a property which will be used for Airbnb or similar short-stay accommodation. You want to claim GST on the purchase of the property, and all of your related expenses running the property. This is a situation where GST registration can be advisable.

There are some caveats though e.g. if the seller is GST registered, then you can’t claim the GST when you buy the property; GST would have to be paid when you eventually sell the property if you sell to a non-GST registered buyer. Our point is, while there are benefits, this is one area where it is easy to come unstuck. Therefore, please talk to us first.

INTEREST DEDUCTIBILITY LIMITATIONS

Be aware that short-stay accommodation that is not a mixed-use asset is captured by the new (2021) rules around interest deducibility. Namely, existing properties used for long-term residential rental or short-term accommodation, purchased now, can’t claim the interest on the mortgage in the tax returns. If you purchased your property before late March 2021, then the interest deductibility is being phased out over the next four years. For more info, see this video and this article.

TAKE THE NEXT STEP

Providing short-term accommodation can be a great money-maker, but it is a complex area of tax, with lots of different rules depending on your situation. The good news is that you can reduce tax by claiming expenses. We invite you to take the next step, and contact us today about sorting the tax on Airbnb income in NZ.

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