Renting property on Air BnB or other sites such as Book-a-Bach and Bookings.com can have some significant unintended GST consequences and we encourage all clients to contact us prior to listing. The particular risk areas are:
- Generating Air BnB rental income of more than $60,000
- Listing property on Air BnB which is owned by a GST registered entity
Those that own a holiday rental or are looking at purchasing one should be aware that the GST rules for short-term holiday rentals are different from a residential rental property which is exempt from GST. Rather short-term rentals (including the use of Airbnb or Book-a-Bach etc) are considered commercial by nature and therefore, a taxable activity under the GST rules. These rules mean if your annual total rental income exceeds $60,000 then GST registration is mandatory.
If you currently own the property in a non-GST registered entity (e.g. personally or a Trust etc) and the annual turnover doesn't exceed $60,000 then you won't need to register for GST. However, if an entities total combined rental income along with any earnings from other taxable activities (e.g. sole trader income) does exceed $60,000 in any 12 month period the entity must register for GST. GST must be returned to the IRD on all short-term rental income and claimed on associated expenses.
Another catch is if you own the property in an entity that is already GST registered (e.g. a trust owns a GST applicable commercial property and a Bach) and you then decide to rent the Bach out for short term accommodation. By default that property will now be captured by the GST rules.
While having to account for GST on rental income and costs is administrative, the primary issue is that the capital asset of the property is also captured by the GST rules. This means when the property is sold you may have to pay GST on the sales price. You will be able to claim GST on the original purchase price, but the timing of the claim is based on a time-apportioned basis. For instance, if you've owned the property for 3 years and then it becomes subject to GST in the 4th year, a GST claim can be made for ¼ of the GST credit in the first GST adjustment period. If the property is used 100% for rental (i.e. no private use), the balance of GST on original purchase price can be claimed at the end of the 2nd adjustment period.
Mixed use asset rules (where the property is used partly for private use and partly for income generation) can further complicate GST apportionment. Detailed information is required for rented nights, private use and vacant nights.
This is a complex area of tax where many different scenarios can arise. If you would like to discuss this further please get in touch with us.