With the prolific increase in Airbnb and Bookabach-type rentals over recent years, particularly before COVID-19 struck and tourist numbers were curtailed, some property owners have been generating significant income from short-term property rentals. With this, however, comes the potential requirement for property owners to unwittingly become required to be GST registered.
Under the IRD interpretation, a short-term rental (a rental term of fewer than 90 days) is treated differently from a long-term residential rental. With this may come the requirement to comply with the normal GST rules and both rental income and rental-related expenses will be caught in the GST net.
The net for short-term rental is wide and varied and will generally include rental from all properties under one ownership. For example, if you own an Airbnb apartment and a holiday house, the rental income from both properties would be grouped together.
The key figure to be aware of in this situation is the GST registration threshold of $60,000 of business income per annum for the entity that owns the property. The IRD requirement is that “at a point where you reasonably expect” the entity’s income for the coming 12 months from all sources, including business income, contractual income and short-term rentals to surpass $60,000, you are required to register for GST and begin filing GST returns.
This is important because the implications of being GST registered are often not well appreciated. If you are GST registered, then you can generally claim GST on the purchase price of the property. However, you will also have to return GST on the market value of the property when it is sold or when the property is no longer rented short-term (a change of use adjustment).
Owners of short-term rental properties should also be aware of the implications of any private use of the property. Mixed Use Asset rules may require an adjustment and repayment of GST if the private use replaces some of the short-term rental.
Property owners should be aware that if the property remains vacant for any length of time then the taxable activity may be deemed to have ceased and you would be treated as having deregistered for GST. The consequences of this can be serious in that there will be a significant GST payment required at a time when there is no incoming cash from a property sale. In addition to this, owners of term rental properties should also remain aware of the Bright Line rules, the
ring fencing of rental losses and other regulatory requirements.
As you can see there are significant potential issues to be mindful of so if you own a short-term rental property and are unsure of your financial and administrative requirements, please contact your client manager.
