Understanding tax on short-stay & visitor accommodation

As the demand for short-stay and visitor accommodations continues to grow, understanding the tax implications has become increasingly important for property owners and businesses in this sector. 

Whether you’re renting out a spare room on Airbnb or managing multiple vacation rental properties, staying compliant with tax regulations is essential not only to avoid penalties but also to optimize your financial performance.  

Short-stay and visitor accommodation types include:

• A room in your house

• Your whole house

• Another residential property that is not your main home, such as an investments property or a property you intend to sell.

• A cottage, caravan or sleep-out on your property.

• A holiday home.

Here’s a comprehensive guide to help you navigate the tax landscape for short-stay and visitor accommodations.

1. Key Tax Considerations

a. Income Tax

Declare All Earnings: Income generated from short-term rentals is taxable and must be reported on your tax return.

Deductions: You can deduct expenses directly related to the rental activity, such as maintenance, repair, and cleaning costs.

b. Goods and Services Tax (GST)

Threshold Consideration: If your annual turnover exceeds the GST registration threshold, you may need to register for GST, charge GST on your rental income, and remit it to IRD.

Input Tax Credits: When registered, you might be able to claim input tax credits for GST paid on expenses related to your rental activity.

2. Record-Keeping

Maintaining accurate records is crucial:

Track All Income and Expenses: Use accounting software or spreadsheets to document all rental transactions and expenses.

Retain Supporting Documents: Keep all receipts, invoices, and documentation that support your tax filings.

3. Tax Planning Strategies

Consult a Tax Professional: Seek advice from a tax accountant familiar with short-term rentals to optimize your tax situation.

Consider Legal Structure: If managing multiple properties, consider creating a business entity for liability protection and possible tax benefits.

Plan for Depreciation: Understand how depreciation of the property and furnishings affects your tax obligations.

4. Common Pitfalls to Avoid

Inaccurate Record-Keeping: Poor record-keeping can result in missed deductions or issues during audits.

Misclassifying Rental Income: Distinguish between personal use and rental periods to correctly report and allocate income and expenses.

You can find more information here.

Understanding the tax responsibilities associated with short-stay and visitor accommodations can be complex but is necessary for the financial health and legal compliance of your business.  By staying informed about the various tax obligations and seeking professional guidance, you can better manage your business’s tax responsibilities while maximizing your profitability.

For tailored advice and assistance in managing your tax obligations for short-stay accommodations, feel free to reach out to us, our team of experienced accountants is here to help your business thrive.