Understanding Short-Stay Accommodation: Income, GST, Expenses, and Interest Deductibility

Understanding Short-Stay Accommodation: Income, GST, Expenses, and Interest Deductibility

Short-stay accommodation, often facilitated through platforms like Airbnb or Bookabach, has become a popular way for property owners to generate income. However, it comes with specific tax obligations and opportunities for deductions. Here's a simplified guide to help you navigate the tax landscape of short-stay accommodation in New Zealand.

Income from Short-Stay Accommodation

Any income you receive from renting out your home or a part of it as short-stay accommodation is considered taxable income under the Income Tax Act 2007. This applies whether you rent out a room in your home or a separate dwelling on your property. The income is taxable even if the activity is not run as a business. If you rent out a separate dwelling on your property, the income is also taxable, and you may claim 100% of your deductible expenses if the dwelling is not used privately. If it is used privately, the mixed-use asset rules may apply.

GST Rules for Short-Stay Accommodation

If your short-stay accommodation activities generate more than $60,000 in a 12-month period, you are required to register for GST. Even if your income is below this threshold, you can choose to register voluntarily. Once registered, you must charge GST on your accommodation services and can claim GST on expenses related to the taxable activity. However, if the property is used for both private and taxable purposes, you must apportion the GST claim accordingly.

Expenses You Can Claim

Expenses related to earning income from short-stay accommodation can be claimed as deductions. These include:

1. Fully Deductible Expenses: Costs solely related to the rental activity, such as advertising fees, are fully deductible.

2. Partially Deductible Expenses: Mixed expenses, such as home loan interest, insurance, and rates, need to be apportioned between private and rental use. The apportionment is typically based on the floor area used for rental purposes and the number of nights rented.

3. Depreciation: You can claim depreciation on chattels used for the rental activity, but this too must be apportioned if the chattels are used privately.

4. Standard-Cost Approach: If eligible, you can use the standard-cost approach, which simplifies the process by allowing you to use standard costs set by the Commissioner for deductions. This approach is available if you meet specific criteria, such as not renting out rooms for more than 100 nights a year.

Interest Deductibility Changes

Interest deductibility rules have undergone changes. From 1 April 2024, landlords can claim 80% of interest deductions on rental properties, increasing to 100% from 1 April 2025. This change repeals the previous interest limitation rules, which had phased out interest deductibility for residential investments. However, during the phase-out period, interest deductions are subject to apportionment based on the extent of income-earning use of the property. 

Navigating the tax obligations for short-stay accommodation can be complex, but understanding the basics of income, GST, deductible expenses, and interest deductibility can help you manage your tax responsibilities effectively. For more help, contact us.