Thinking of renting out your property on Airbnb or Book a Bach? - Issues to consider

It might seem attractive - the children have moved out - you have some spare rooms in the house, or maybe you have a sleepout on your property or a rental property that you think you can make more income out of.

Airbnb has changed the accommodation game - we have stayed in a number of fascinating (and some not so fascinating) homes or properties that we have found through Air BnB.  But looking at becoming an Airbnb landlord has a number of issues that you need to consider and factor into your decision making:

1. Taxation of the income (information from Specialist Airbnb Accounting)

The income that you earn from renting out your rooms or property IS taxable in New Zealand, and if your income is over the GST assessable threshold of $60,000 pa, you may well find yourself liable for GST on the income.

Income earned from providing short-term accommodation is taxable in New Zealand. This means that you will be required to file Income Tax returns to account for the Airbnb income earned. Generally, you will be allowed a deduction for the costs of providing the accommodation, such as interest on mortgages, rates, insurance and the like.

While it is not immediately obvious, providing short-term accommodation can be a taxable supply for GST purposes. This is because the supply of accommodation in a commercial dwelling is not an exempt supply.

The definition of a commercial dwelling in the GST Act includes a hotel, motel, homestay, farmstay, bed and breakfast establishment, inn, hostel, boardinghouse, managed apartment or anything similar to the above.

An Airbnb will usually encompass one or more attributes similar to dwellings listed above. For instance, the short-stay aspect, managed by a third party and the charging of other supplies, such as a cleaning fee all indicate that the dwelling would be commercial in nature.

We note that GST registration would only be required if you breach the threshold of $60,000 in rental income. This threshold is determined based on gross rental (before other costs such as commission fees are paid).

Learn more at the Specialist Airbnb Accounting website - https://www.propertytaxreturns.co.nz/airbnb-accounting/

When you are assessing the viability of becoming an Airbnb (or Book a Bach) landlord, you will need to factor in the taxation that you will have to pay - and the fact that you may need to get an accountant on board to help you - with their associated costs, in your decision making.

2. Rates on your property

A number of local authorities now charge commercial rates on properties that are let out on Airbnb or Book a Bach.  The rates are usually linked to how many days a year the property is rented (although anecdotally the information used may not be entirely accurate).  If the information used is not accurate you can appeal the rating decision.  There has been significant publicity around the changes to rates in Auckland, Rotorua and Queenstown, but there are a number of other locations that charge commercial property rates on 'accommodation' providers.

Here are some articles on the topics:

Some Auckland Airbnb owners making $80,000 a year 

Only a third of liable Airbnb hosts in Auckland paying bed tax

Airbnb tax 'cruel', homeowners 'struggling to make ends meet' - Taxpayers' Union

The Auckland Council Bed Tax: What new APTR rates Mean for Airbnb Hosts

Auckland Airbnb hosts sound warning on tax

Short term rental industry thriving

It is important to check this out when you are making your decisions.

3. Fire & General Insurance (from Bridges Insurance)

If you are renting out even one room in your house, you could technically be considered a landlord, so you need to consider protecting your property with an adequate insurance policy.

The process of becoming a host using platforms such as Airbnb is easy and inviting. You take photos, highlight some great features and decide on a price. Then you list it. Very straight forward. However, insurance questions are not really top of mind and perhaps not as easy.

The biggest problem with renting your home through these home sharing networks is that you immediately change the use of your home from "residential only" to a sort of "rental income" property, which can be considered a commercial operation. Even though the rentals may not be frequent, the moment you are placing ads and offering your whole home, or even just a room in it for rental, the use of your property changes, even if you still reside in it.

The solution could be as simple as having tailored commercial insurance cover.

“Airbnb makes it so easy to put your house on the market for short-term rental, however, the type of insurance arrangements needed aren’t always straightforward” highlights Faith Owens, Director at Bridges Insurance Services “This is where our experience and industry knowledge can really pay off. Our team can assist in tailoring appropriate cover for your property whether it’s an extension to your domestic policy or a new commercial cover.”

Although the Airbnb & BookABach platforms might offer some insurance cover, it’s really important to read the user agreement and insurance policy provided by the home sharing network to fully understand what they will and will not cover. Their coverage is generally limited.

So before you take those bookings over this coming year, talk to your Fire & General insurance or broker to make sure that you are appropriately insured!

4. Costs for replacing linen, cleaning and durable items.

You need to take these costs into account, bed sheets and towels (and even duvets and bed spreads) lose their freshness rapidly when they are being laundered every day or every second day.  You need to budget in regular replacements as a cost.

While guests on AirBnB can be asked to pay for the cleaning, it still has to be done.  Are you going to do it?  Are you going to pay someone to do it?. What happens if they are unwell and can't do it on that day and you have people coming in in an hour?  You need to factor in the amount of flexibility that you have to suddenly drop everything if you are at work, and go and get the property ready for the next guests.

5. Damage from guests

While there are the odd horror stories every now and then, most guests do not damage the properties that they stay in.  However, you do need to take into account normal wear and tear, and be aware that a guest may become a horror and unwanted guest, causing more damage than you would expect.
Other interesting articles you may want to read:
Inland Revenue proposes nightly tax for short-stay accommodation providers 05/02/2019 NZ Herald


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