It’s no secret that the Queenstown Lakes/Central Otago area sits comfortably as one of the most expensive regions in New Zealand when it comes to average house purchase prices, not to mention the high living costs. It’s hardly surprising that it’s become a popular choice for home-owners to jump on the short term rental bandwagon (using platforms such as Airbnb and Bookabach) to supplement income. However, there are a few important considerations when renting out your property as short term accommodation.
QLDC reviewed visitor accommodation rules in the District Plan in 2019 to address some of the challenges that short term accommodation brings to the area. Tiered consenting standards have been introduced, with different criteria depending on housing density zones and the number of nights the house is let out through the year. Accommodation is either classified as a ‘Residential Visitor Accommodation’, ‘Homestay’ or ‘Visitor Accommodation’.
Residential Visitor Accommodation (RVA): Use of a whole house (including a residential flat), by paying guests where the length of stay is less than 90 nights.
Homestay: Use of a residential unit (including a residential flat), by paying guests where the length of stay is less than 90 nights, at the same time as the property is occupied by residents for use as a residential activity.
Visitor Accommodation: Commercial operations including hotels, motels, backpackers, staff accommodation and camping grounds.
It’s important you are aware if/what consent is needed for your accommodation. Check QLDC District Plan Fact Sheet Visitor Accommodation for the rules and guidelines.
Because a holiday rental isn’t covered by the Residential Tenancies Act, many people choose to list with a third party website (e.g. Airbnb) as terms and conditions are automatically included with your listing. Conditions may relate to smoking, pets and maximum guests etc. If you’re renting out your holiday home privately, consider writing up an agreement for tenants to sign upon booking, such as this sample agreement from HolidayHouses.co.nz.
Let’s talk about tax
In most cases there are income tax implications for earning income through short-term holiday rentals; and in some cases you may also be subject to GST registration.
Income tax liability depends on whether your home is permanently used as a holiday home, or whether it is mixed use. ‘Mixed use’ means throughout the year, the home must comply with all the below;
- Be occupied by the home owner (for private use) some of the time;
- Be let out as a rental some of the time;
- Be unoccupied for 62 days or more.
If your home qualifies as mixed use and your income from the rental is less that $4000, you aren’t required to declare the property on your tax return – but this also means you can’t claim expenses for the home either.
If your home does not full into the mixed use category above – for example, it is rented out more consistently, or you earn more than $4000 in rental income – you are required to declare the income you earn on your tax return but you can also claim expenses to offset the income.
Note: if you rent out a room or rooms within your home as short-term accommodation, the mixed use rules do not apply and you are required to declare rental income.
Read more about income tax obligations on the IRD website.
Because the supply of accommodation in a commercial dwelling is not an exempt supply, GST registration is required if your gross rental income (before expenses, including commission) is above the threshold of $60,000.
Selling your Airbnb? There’s a catch… if you then choose to sell your Airbnb property to a purchaser who is not GST registered (e.g. their annual turnover is less than $60,000 per year, or they will be living in the home themselves), then as the seller, you pay GST based on the full sale price of the property. But as far as your GST claim goes, you can only claim based on what you originally paid for the property, up to 100%. What does this look like in dollar value?
John purchases a property for Airbnb for $350,000. As his turnover is over $60,000 per year, he registers for GST. The GST amount is $45,652. John expects the property will be used 70% of the time for Airbnb, so he makes his first GST claim based on this estimation, a total of $31,956. When John sells the property to a non GST registered buyer for $820,000, the GST payment calculation is based on the full sale amount of the property (15% of $820,000 = $106,956), less the difference between the GST amount of the original purchase price of the home and the GST amount based on the expected use of the property ($45,652 – $31,956 = $13,696). As nothing changed on John’s usage estimation (still 70%), John makes a claim for $13,696, with the remaining amount paid to IRD – a total of $93,260 ($106,956 – $13,696 = $93,260).
As you can see, the cost implications can sting, especially when you might not have had the property registered for GST for a long time period!
Tax considerations around short term rental accommodation can be complex, so we suggest you get in contact if you have questions or concerns.
Ensure you’re insured
Don’t get caught out unexpectedly – make sure you contact your insurer before renting out your home to check you’re covered if anything goes wrong. Policies vary depending on the insurer and you may need to upgrade to a different premium rate or add on additional policies.
It’s important to remember that tenants or holidaymakers aren’t as familiar with your home as you are, so safety processes such as locking the home, shutting windows or turning off appliances, may not be followed as diligently or correctly. Overseas guests could follow different practices in their own country or potentially not understand written instructions for the home.
Did you know? January is the most common month for burglaries across NZ with opportunists taking advantage of empty homes, vehicles and Christmas shopping.
Health and safety is another important consideration. Again, keep in mind that renters won’t be as familiar with your home as you are and may not have the same awareness around safety. Your council will also have specific compliance requirements, e.g. smoke detectors, pool fencing, chemical storage and water craft regulations. It’s best to contact your council to check.
QLDC have written this guide for short term rental owners in the Queenstown Lakes area.
For more info