May 31 2017
An easy way to make a bit of money while you’re on holiday is to rent out your property as an Airbnb. However, it isn’t as simple as getting a booking and flying away. As an Airbnb host, you’ll need to consider income tax, GST and an ownership structure. Here’s what you need to know to get set up before you set off.
Online booking platforms like Airbnb, BookaBach and Holiday Homes are becoming increasingly popular. You’re able to market and rent your property while away, and make money from empty holiday homes or spare bedrooms. BookaBach currently has more than 12,200 holiday rentals and Airbnb has 15,000+ hosts. In 2016, Airbnb hosts averaged $3,800 in annual income.
What is mixed use apportionment for income tax?
Any income you generate with your Airbnb is taxable under the Income Tax Act 2007. You may be able to receive limited deductions for expenses incurred in deriving income or in carrying on business to derive income.
For Airbnb rentals, deductions are usually split between direct costs connected to deriving income, such as commission fees, cleaning, consumables and so on. If your property has both a private and an income derivation, i.e. you live in it for part of the year as well as renting it out, your mixed use costs such as rates, interest, and power are apportioned. Mixed apportionment rules also apply if there’s a period of non-use of 62+ days in an income year.
The formula for working out your MUA percentage is: Expenditure x income earning days or income earning days + counted days.
An example of an MUA percentage
Bob and Sue have a batch at Waimarama Beach. They stay there for 50 nights during summer. During the rest of the year, they rent the batch for $400 a night and receive bookings for 100 nights.
They are able to apply mixed use apportionment because the batch was used privately for 50 days, rented for 100 days and unused for 215 days. Private use is 50 out of 150 total days used (33%) meaning 67% of mixed use costs can be claimed. Bob and Sue’s mixed costs are $34,000 for bank interest, power, internet, Sky and insurance. They claim 67% which is $22,780.
For direct costs, general apportionment allows Bob and Sue to claim based on 315 out of 365 days, equalling 86.3%. Cleaning, marketing and commission totals $2,750.
They calculate their tax as follows: Total income $40,000 – direct costs of $2,750 and mixed costs of $22,780 = $14,470 profit.
Guidelines for the apportionment of deductions
It’s your responsibility to ensure your apportionment is appropriate and accurate. You can only claim deductions for actual expenditure incurred in gaining income. These expenses must be fair and reasonable. Keep receipts and good records.
Floor area and use is also a measurement for apportionment, so if you’re renting out part of your property, your claim should be based on that floor area, not the entire house.
If MUA rules don’t apply, you still have to make an apportionment between private and income earning use. There is no single prescribed formula for apportionment. If you’re uncertain about how to assess your apportionment and calculate deductions, talk to your accountant.
Does GST apply?
You only need to register for GST if the gross rental income exceeds $60,000. Registering for GST does have an impact on cash return. If you decide to sell your property, it will be subject to GST.
You can operate an Airbnb property as joint tenants, tenants in common or in a partnership as defined in the Partnerships Act 1908. Talk to your accountant to work out income tax and GST implications.
Finally, before you take off...
Check with your local council to see if you will need to register for any additional requirements for visitor accommodation. There could also be additional rate charges or resource consent application requirements.
Talk to your insurer to make sure you have appropriate insurance and sufficient cover. Standard home and contents insurance doesn’t cover Airbnb properties.
Talk to your bank manager if finance is a consideration. Lenders treat visitor accommodation differently to long term rentals. Airbnb rental income may not be counted as revenue unless you can show sufficient activity for an extended period, much like operating a business. Also note that banks generally don’t lend to cover upcoming GST payments.
Have a great journey.