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The K3 Accounting team recently had a discussion with a client who was looking at putting their properties into Airbnb. Their properties were currently held long-term for residential use and they were looking at getting a better return on their investment by having these properties in short-term accommodation like Airbnb.
They thought they understood all of their tax obligations for short-term accommodation until we discussed GST. What they didn’t know, was that providing short term accommodation is a taxable supply for GST purposes and therefore, there are GST implications to consider.
After discussions with our client they made the decision not to do short-term accommodation as they would have been required to be registered for GST.
This article briefly covers some of the GST issues we discussed in relation to short-term accommodation.
If the income received is greater than $60,000 in any 12-month period there is a requirement to be registered for GST. GST would need to be charged on the rental income received and costs associated with the short-term accommodation may be able to be claimed as an expense.
For the property that you are using for short-term accommodation, there is an opportunity to claim GST as a second-hand GST claim. There are some very specific rules around calculating how much you can claim with each GST return filed.
There will also be a requirement to file a GST return with Inland Revenue on regular basis, either one, two or six monthly basis.
A drawback to consider is that if you decide to sell the property or remove it from being in a tax activity, i.e. short term accommodation, there is a requirement that you will have to pay back the GST on the taxable portion of the property’s value. Given that the property would have likely increased in value, GST on sale will exceed more than what was claimed, therefore any capital gains on the value of the property would be subject to GST. This would be at a cost to the owner of the property.
However, if the property was sold to another GST registered person and they were using the property to make taxable supplies – whether by also providing short-stay accommodation or some other taxable supplies, GST would be charged at 0% and therefore no GST charged on any potential capital gains.
It is also timely to mention that Inland Revenue has recently asked for feedback on a proposal to simplify tax obligations for people who rent out their property as short-term accommodation. Inland Revenue has published several documents for consultation on the Income Tax & GST implications of providing short term accommodation. Regarding GST, there was very little detail provided in these documents. We will keep you posted on any developments.
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