The Disruptive Technology of Air BnB is beginning to have a profound impact on the way we book accommodation and let space.

Landlords are starting in ever-increasing numbers to look at the opportunities to rent furnished accommodation on a casual basis at rates that generate a higher overall income despite vacancy rates than what could be achieved with a permanent rental.

In that respect they are competing with traditional providers of commercial accommodation, hotels, motels and boarding houses.

There are some tax consequences to this type of activity though.

GST Registered Or Not?

Firstly, the impact of GST must be considered. The provision of residential accommodation in a dwelling is specifically excluded from being a taxable activity for GST. This is why residential landlords are not GST registered, but the exclusion is about the nature of the activity, not the nature of a dwelling. Those providing accommodation in “commercial dwellings” are subject to GST.

Where the accommodation is provided to someone on a short term basis without a tenancy agreement, in accommodation that is not their habitual place of abode, this would generally be considered within the boundaries of a taxable activity for GST.

However, where the turnover from this activity is less than $60,000, GST registration is voluntary. But consider the situation with a family trust already GST registered as a result of owning a commercial building. If short term casual income is then generated from a dwelling this property also will need to be considered with respect to GST.

Before you start thinking this might land you a GST refund, understand that the rules around claiming GST have now changed after a change of use to allow GST only to be recovered on a drip feed formulae based on how long the property has been in a taxable activity verses how long it has been owned overall. It’s also only recoverable on cost subject to a few other ifs and buts.

If at the point our property enters the GST arena it has already increased significantly in value from its original cost the change of use could expose our gain to 15% GST.

Issues To Consider

Landlords also experimenting with short-term letting and adding dwellings to this activity need to project forward their likely turnover. As soon as you are on track to turn $60,000 from the activity overall you lose the option to remain unregistered.

Other tax issues include the potential impact of the mixed use asset rules where the property owner is enjoying personal use of the property when it is not let to guests. These rules allow for deductions of mixed use costs only in the ration of booked nights to total nights occupied, for example, no deduction for the vacant but available nights. There is also a ring fencing provision for losses if gross rent does not exceed 2% of the CV of the property.

Even renting of a single room to boarders or flatmates has tax consequences. Details of this are in the IRD publication.

Consider also that short term accommodation will also require you to furnish the property and provide power, phone and Wi-Fi. Assets purchased for this purpose are depreciable and the extra utility and marketing costs are deductible.

Consider carefully your insurance issues. This type of activity does alter your risk profile, tell your insurer.

Remember those ‘P’ cooks are wealthy guys; they are just as likely to rent your multimillion dollar beachfront home to cook their meth as they are an industrial unit in the back of beyond.

Remember those 'P' cooks are wealthy guys, they are just as likely to rent your multimillion dollar beachfront home to cook their meth as they are an industrial unit in the back of beyond - Mark Withers