Tax Issues On Short Term Rentals
Updated: Nov 26, 2018
Short Term Rental income is taxable under the Income Tax Act 2007. To calculate your taxable income, take the gross income (before commissions) and deduct expenses which are divided into Direct costs and Apportioned costs:
Direct costs are related to the rooms being rented (accounting fees, commissions, credit card surcharges, cleaning, guest supplies, bed linen, repairs and maintenance to Airbnb rooms, small assets under $500, marketing).
Apportioned costs are shared costs where guests share common areas of the home. To calculate apportioned costs work out the percentage of the shared area ie sq m shared area of house divided by sq m area of house & the percentage of the days used ie days rooms rented divided by 365 and mulitple these by the operating costs (mortgage interest rates, maintenance, power, water, internet, etc).
The taxable income will be attributed to home owner/s, a company, a trust etc and taxed at the appropriate tax rate. Gross Airbnb income of over $60,000 generally requires GST registration. If the short term rental income is under $60,000 there may be a GST issue If the home owner/s have a business in their own name.
If the gross short term rental income is less than $4000 per annum there would be no tax to be paid.
RENTING OUT YOUR HOLIDAY HOME (mixed use assets)
If you rent out your holiday home to the public for short term stays specific tax rules apply if; 1. You make private use of the property. Private use means it is used by yourself or your family even if rent is paid or if your friends use the property and pay rent at less than 80% of the market rate it is deemed as private use. 2. You rent the property at 80% or more of the market rate (to non-family members). 3. There is a period of non-use of 62 days or more in any income year To calculate the taxable income of a mixed-use asset take the gross income from rent (except rent from private use which exempt from income tax) less deductible expenses. Deductible expenses are divided into; 1. Fully deductible expenses: you can claim 100% of any expense which relate directly to the income earning of the mixed-use asset eg advertising, repairing damage caused by tenants. 2. Non-deductible: you can’t claim any expenses related to private use of the mixed-use asset 3. Apportioned. If an expense relates to both income earning use and private use (e.g. mortgage interest, rates, insurance, repairs and maintenance, lawn mowing) you need to apportion it using this formula: Actual expense x (income earning days divided by income earing days + private use days) The GST rules already mentioned apply to renting your batch as a mixed-use asset. There are tax structures that may be beneficial to Airbnb owners and holiday home owners. Boarders and Long Term Residential Rentals.
There are specific taxation rules related to Boarders. A boarder is someone who stays in your private home and shares accommodation and meals. You are tax exempt if you have 2 boarders at $257 or less a week and another for $210 or less a week. There should not be more than 4 boarders on average during the income year. Long term residential rental is a GST exempt activity and taxation is calculated on the total income less total expenses of operating the property.