It’s that time of year again, when tourists begin to travel in their droves to enjoy the Northland sunshine. Many Northlanders take advantage of the increase in visitors to the region by offering their home or a room on short term rental sites like Air BNB or Book-A-Bach, but are they following the IRD’s tax rules?
There are over 1700 active short term rentals in Northland taking an average of $142 in rental earnings per night over the past year*, a figure which fluctuates greatly from season to season. According to the IRD, the income from these properties is liable for income tax, regardless of if it is an owner’s main residence or not.
IRD rules on ‘mixed-use assets’ kick in when the property is considered to be “mixed use”. A mixed use property is one that is used for personal use (such as a bach) and for business purposes (generating income by being rented through Air BNB). If total rental income from a mixed use property is less than $4,000 in a financial year then no income tax needs to be paid to the IRD. On the flipside, offering a property as a short term rental means some expenses can be claimed as business-related and they are then considered tax deductible.
If an owner’s Air BNB, or other short term rental, income is greater than $60,000 per year they’re also required to charge GST at 15% of the price and return this to the IRD. GST on certain expenses can be claimed back from the IRD too.
Income tax is another area that owners need to be aware of when deciding upon renting their property. The IRD will tax an individual’s total income, which may just bump them into a higher tax bracket for the additional Air BNB income.
Auckland Council recently introduced what it calls Accommodation Provider Targeted Rates (APTR)^ where rate payers who rented a property or a room are charged business rather than residential rates by Council. The APTR funds are to contribute to tourism funding in the region. There is no indication if Whangarei District Council or Far North District Council are to introduce these measures for this region.
With tourist numbers steadily increasing, short term rentals can be a great little earner. Villa Chartered Accountants and Business Advisors are experts in simplifying tax obligations for renting through Air BNB and other short term rental sites. We will make it easy for you to follow IRD guidelines and maximise your earning potential.