Do you do have boarders or income from short-term accommodation such as renting out a room, or your home for a short term. Your tax obligations can be different depending on the use of the property.

Boarders (Renting out a room)

If you have boarders or students living with you, you don’t have to declare this income unless your income from this source is higher than the standard cost per week or if you have more than 4 boarders.

The standard weekly cost is $266 for each boarder up to 2 boarders and then $218 for each boarder for the 3rd and 4th boarder.

Holiday Home

Different rules apply for a mixed used holiday home. That is if you have a holiday home that you use yourself, you rent it out and it’s unoccupied for 62 days or more.

If the above applies and you earn less than $4,000 a year from renting out the holiday home, you don’t need to include this income in your tax return. Note: you also cannot claim any expenses as well.

Similar rules also apply to mixed use boat and aircraft.

Airbnb, Bookabach or other Accommodation sites

If you advertise on websites such as Airbnb, Bookabach etc you need to include this income in your tax return. Even if you received income from this as a one-off or irregular rental, you still are required to include this.

Not sure?

Not sure if you are required to include income from your property in your tax returns. Give us a call or flick up an email for a no obligation free consultation.

IRD has released an issues paper on the proposal to change the rules of how losses from rental properties can be applied against other income. Under the proposed new rules these losses will be ring fenced meaning property investors will not be able to use these losses against their other income. The change according to the government is an effort to level the playing field between speculators, investors and home buyers.

At present if you own a rental property which is held under your name (sole trader), in a partnership or LTC and you make a loss, then you can offset that loss against your other income such as tax paid on wages. You will therefore get a tax refund.

According to the proposal the ring-fencing will be applied on portfolio basis meaning investors would be able to offset losses from one rental property against rental income from other properties – calculating their overall profit or loss across their portfolio.

The losses will be carried forward and offset against future income from the portfolio or on taxable income from sale of residential land.

What should investors do?

• There is no need to panic as this isn’t law yet. It is proposed that the rules will apply from the start of the 2019–20 income year. The rules could either apply in full from the outset, or they could be phased in over two or three years.
• Investors who are negatively geared need to look at paying of some of their mortgages and making their investments cash flow positive
• If you are dependent on tax refunds to make mortgage payment you may have to reconsider your investment mix. One of the solutions can be to buy cash flow positive properties to offset the losses and get a neutral portfolio.
• Consider your overall budget and see if you can do without the tax refund
• What impact with this have to your overall portfolio and take action based on this.

Again this is only a proposal; you can view the full document here.

As the government’s proposal to ban letting fees passes through the legal hops experts warn that it will only drive up costs for the tenants. This will be true in some cases as landlords will want to keep their returns at the same level. However, its impractical to pass on all cost increases to tenants.

Recent changes have made it compulsory for houses to be insulated and have smoke alarms. While these changes are good they still put pressure on the already decreasing returns from rental properties.

So, are rental properties the go to investment it used to be? The answer is not so simple and varies according to the investors risk/return appetite.

Contact our professional advisors today if you are considering investing in a rental property and we can advise you if it suits you.

Rental income

All rental income received is normally taxable with some exceptions to income from boarders or flatmates (you can read more about this in our boarders/flatmates section)

Rental Income in advance

All rental income received in an income year is taxable in that income year. For example if your tenant has paid you rent in advance for the next two weeks on 31st March 2017, the advance payment will be taxable in the income year 1 April 2016 to 31 March 2017.

Tenancy bond

Amounts you receive for tenancy bond and pass on to the Ministry of Business, Innovation and Employment are not income. Amounts you receive from the Ministry of Business, Innovation and Employment for payment of damages, rent arrears etc, should be included as income.

Expenses you can deduct from your rental income

In a nutshell you can deduct all expenses incurred in earning the rental income which are not capital in nature. Owning a rental property you are likely to have advertising, real estate management and repair and maintenance costs, these are all deductible from your rental income.

Other expenses which you can claim include Rates and insurance, interest on home loan, Motor vehicle expenses (claim percentage depending on usage), Travel expenses, Accounting fees and depreciation.

If you’re unsure whether you’re in the business of renting property, or if you can claim an expense, contact us.

Land bought with the intention or purpose of resale is subject to tax. The taxpayer is required to return any gains as income. However the problem was enforcing this as the “intention test” was subjective.

In light of the, shall we call it the “housing crisis” the government introduced a new land sale rule to supplement the “intention test”.

From 1st October 2015 the bright line test applies to the disposal of residential land. Under the bright line test if you buy a residential property on or after 1 October 2015, and you sell this property within two years, you will be taxed on any gains that you made, regardless of your intention when you bought the property, unless you can prove that you fall within one of the exceptions to this rule. The date a person acquires their “first interest” is the same date as when they acquire land for the purposes of section CB 15B in the Income Tax Act 2007. (Sounds a little technical, so leave this to us)

There are 4 main exceptions to the bright line test:

• The property was your main home
• You inherited the property
• The property was transferred to you as part of a relationship property agreement
• The property was transferred under a will

While the above exceptions might seem straightforward they are not, there specific rules that apply to each exception. For example you cannot have more than one main home, if a person has two homes in which they reside in, the property that is their main home is determined according to which property the person has the greatest connection with. The “greatest connection” test operates only as a tie-breaker when a person has more than one home.

Selling residential property which you have owned for less than two years contact us and help you determine if you not to returns the gains as income.

* The government is looking to extend the bright line test by 5 years. Contact us to find out how this might affect you.