What owners need to know
Consider effect of GST: tax expert
HIGH occupancy rates in Queenstown mean it can be lucrative to rent out property on a shortterm basis, Deloitte Dunedin and Queenstown tax partner Phil Stevenson says.
Outoftown owners often saw shortterm accommodation as a convenient way of making sure the property was available for their own holiday needs while recovering some costs.
Many apartments and houses in Queenstown, and in some other parts of Central Otago, could easily be rented out on a shortterm basis in excess of $1000 a night, he said.
‘‘At this rate, it only takes 60 nights of occupancy to exceed the GST registration threshold, requiring the property owner to register for GST.’’
There were several implications from being GST registered, Mr Stevenson said.
The biggest and most obvious was GST often needed to be returned on the sale price of the property. For residential property, that meant the vendor was likely to bear the GST cost because the property would most likely be sold on a GSTinclusive basis.
While it was possible to get a credit on the original purchase of the property, becoming GST registered essentially gifted 15% of any capital gain to Inland Revenue.
If a person decided to go back to using the property for private purposes and deregister for GST, they were deemed to have sold the property at market value and they would need to fund a GST cost without realising any cash from the sale of the property, he said.
In recent years, Inland Revenue had been focusing on taxing New Zealand’s black economy which was made up in part by taxpayers providing shortterm accommodation.
However, unlike a plumber’s cash job or handshake agreements between friends, using an online platform to arrange shortterm accommodation generated readily accessible electronic records.
‘‘Warning: Inland Revenue and local government bodies are paying attention.’’
Inland Revenue had wide informationgathering powers and the ability to request information from online platforms. Inland Revenue could use the information to quickly identify who was providing shortterm accommodation and request evidence income had been declared in a tax return and taxes paid, Mr Stevenson said.
Similarly, with the recent requirement for IRD numbers to be associated with property transactions, it was now much easier for Inland Revenue to identify when GST should be paid on the sale of a property.
Local governments were also focused on shortterm accommodation being provided. Under local council regulations, a property used for shortterm accommodation was generally considered to be a commercial property which might affect rates charges and result in other administrative requirements such as consents to operate, he said.
Taxpayers should also consider other contracts held if they were providing shortterm accommodation to ensure items such as insurance over the property remained valid.
Staying just one night privately in a property being used for shortterm accommodation could have a significant impact on the expenditure that could be claimed as a tax deduction because deductions for expenditure on days the property was empty could be disallowed, Mr Stevenson said.
For debtfunded investment properties, that could have a significant impact on an aftertax return.
‘‘Some of our clients get quite surprised when we tell them they might be better off staying in a hotel or renting the apartment next to theirs rather than staying in their own vacant property.’’
Mr Stevenson also got puzzled looks when he tried to explain to property owners who had used a trust or a company ownership structure to protect their investment, if they became GST registered they would need to pay GST to Inland Revenue for the privilege of staying in their own holiday home.
The message for anyone, particularly in Central Otago hot spots, wanting to rent their property on a shortterm basis was to do their homework and make sure they did so with their eyes wide open.
‘‘If you are crunching the numbers on a property investment, crossing the $60,000 GST turnover threshold and private use of the property may have a large impact on your bottom line.’’
❛Some of our clients get quite surprised when we tell them they might be better off staying in a hotel or renting the apartment next to theirs rather than staying in their own vacant property❜ — Deloitte tax partner Phil Stevenson