Inland Revenue’s latest Business Tax Update reminds us people renting out houses in Christchurch short-term have to pay income tax on the rent, less deductions. It’s a pity they don’t mention GST because that’s more interesting.
The update is here: http://www.ird.govt.nz/aboutir/newsletters/business-tax-update/2014/btu-issue-057-11-14.html#06
An extract of the relevant section is quoted at the bottom of this post.
So, in a nutshell, if you own a house in Christchurch and someone rents it of you for, say, one month, fully furnished while their own home is repaired you have to declare the income from that and pay any income tax due. Not exactly a bombshell is it? Sure, a few people might genuinely be stunned by the revelation they have to pay income tax on income they receive from renting out their house, even for a short term. But my guess is for most people the Update might as well be telling them how to extract nutrient from eggs by suction.
The really interesting, and more contentious, point is how GST applies.
Providing residential accommodation in “dwellings” is not subject to GST. However, providing accommodation in “commercial dwellings” is subject to GST (assuming the registration threshold is satisfied).
A “dwelling” is a place the person occupies as their “principal place of residence” and excludes any “commercial dwelling”.
A “principal place of residence” is a place the person occupies as their “main residence for the period to which the agreement for the supply of accommodation relates”.
A “commercial dwelling” includes hotels, motels, boarding houses, hostels, B&B’s and similar premises.
If you rent a house out to someone for, say one month, fully furnished, while they have their own place repaired, are you providing anything more than accommodation that is similar to hotel or motel accommodation, i.e. short term furnished accommodation? Is the tenant occupying your place as their “main residence” during the rental period or is it secondary temporary accommodation while their “main residence” is repaired?
I think there is some doubt over how the GST Act applies in these situations. Sure, most will not be within the annual $60,000 GST registration threshold. However, some of the house owners may be registered for GST in their own right for other purposes, or may even wish to register for GST in relation to the temporary rental activity. Whether they should or can is unclear.
I’d like to see clarity on less obvious issues like these when the IRD is publishing notices telling taxpayers of their obligations.
Extract from Business Tax Update November 2014
“Renting out your own home short term
There’s a demand for temporary rental properties in Canterbury because of thousands of families needing accommodation while they wait for earthquake repairs on their homes. Some homeowners are meeting this need by offering furnished homes for short-term rental.
If you rent out your own home, even for a short time, any income you receive is liable for income tax, so you must include it in your tax return.
However, you can claim a deduction for any expenses you incur while your property is rented out. But you can only claim that proportion of ongoing costs for the time your property is rented out. For example, if you rent your home out for three months, you can claim the rates, insurance, interest and any agent’s fees you incurred during that period.
Find out more on what expenses you can claim”