From the Property Team

New Zealanders have a great love affair with holiday homes. Since the establishment of websites like Bookabach and Airbnb it’s become ever easier to share our homes with others whilst covering the mortgage or even making a profit. While these services are highly attractive to property owners, there’s no up-front information about the tax man eating into the advertised profits.

Income Tax

Income on a New Zealand rental property is subject to New Zealand tax law regardless of where the property owner is tax resident. This means that if you’ve living offshore and renting your house while you’re away, that income is New Zealand income and you will be liable for New Zealand income tax.

Expenses of running a rental property are tax deductible, however. As is often the case with holiday homes, if the property is used for both rental and private purposes, any deductions can be subject to apportionment as a mixed-use asset. So, if your property is also used privately (including by a family member, even if they are paying for it), any expenses – such as rates, insurance and property management fees – will only be partially tax deductible.

Goods and Services Tax

Short-term rental accommodation is a service subject to GST, and GST registration is compulsory where the combined gross income from GSTable services is greater than $60,000 in any 12 month period. Owning a property with high rental value or multiple properties can very quickly tip you over this threshold, making GST payable on all rental income. Additionally, if the property is owned by a business or a trust there may be a requirement to charge market rental even for private use, thus incurring further GST liability. This tax burden can be lessened with some or all of the GST on the property’s associated expenses able to be claimed.

The second, and potentially greater, implication of needing to be GST registered will come when the property is sold (or deregistered for GST). There are a number of contributing factors, but it is possible that GST will need to be paid on at least some of the sale proceeds.

Promoting your property online for short term rental accommodation is very quick and easy to set up, with the potential to earn good money ‘dangled in front of you like a carrot on a stick’. What websites like Airbnb don’t make clear to property owners are the adverse tax consequences you may face further down the line.

Let us know if you have any questions about renting your holiday home. Call 04 970 3600 or email us on info@wakefieldslaw.com

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