NZ Hosts - Summary of recent tax changes & proposals

[Ben551]

Dear all~

I wanted to post a short message for New Zealand hosts, to ensure you all have visibility of proposed changes to the tax landscape for short term rentals, including Airbnb. 

These changes have all been proposed in a very short space of time (within the last month, some even only last week) so many hosts are finding it hard to keep up with "what is what".  Some people are confusing the changes as all the 'same thing', when they are 'three separate things'.  I will do my best to summarise, however I'll leave it to you to read the information carefully.  If you want to understand it better, I recommend you consult with your accountant.

Much of this will mean higher taxes for STR hosts, but please don't shoot the messenger!  The good news is that some of it is only proposed and has not happened yet - so there is hope it will change. One change may or may not happen in a couple of years (number 1) and the impact could be significant, one change happens within a month (number 2) and could be a good thing for low volume hosts, and the last change (number 3) has already happened.

1. Capital Gains Tax

- The Tax Working Group returned their Final Report last week.

- If approved, Capital Gains Tax at 33% will take effect from 1 April 2021

- Page 12 proposes situations where capital gains will apply to Airbnb hosts (see below)

- To avoid capital gains, Airbnb hosts can forego claiming tax deductions for property expenses (and pay higher income tax)

2. IRD Allow Set Costs Deductions

- The NZ Inland Revenue Department (IRD) publised an exposure draft last week on short-stay accomodation and boarders

- The overview is here: https://www.ird.govt.nz/resources/6/e/6ee71ab2-fb30-4fb2-980b-50a9dc59d168/pub00303-overview.pdf

- The proposal is open to public comment until 22 March 2019 and, if approved, will take effect from 1 April 2019 (soon!)

- Changes proposed include allowing hosts who rent rooms for less than 100 nights per year to claim a flat $50 per night expense deduction against their income, instead of making deductions for actual costs (optional)

- There are a number of other things proposed, so I recommend reading fully to understand how it might affect you

3. Auckland Council introduce Business Rates

- The council have extended business rates to apply to accomodation provides such as Airbnb

- The changes apply from 1 July 2018 (were back dated for some hosts)

- Those who book less than 28 nights per year are exempt and do not have to pay the APTR tax.

- Those who book 29 nights or more are subject to a tiered scale of business rates.

- The picture below gives a good guide of how much this will cost hosts.

- More information can be found here

Lastly, to reiterate - the changes listed above relate to New Zealand hosts, so this post is to help the NZ hosting community understand the recent news a bit better.  It has been hard to follow for most people, so my advice is don't read the news coverage, read the source documents and raise questions with your accountant.

Lastly, hosts from other countries are of course welcome to comment!

[Ann72]

@Ben551 A lot going on there!  Today's New York Times reported:  "New Zealand Locks Its Door From Inside: As home prices jumped, the country decided to ban foreign buyers."  

All I can say is that I hope your accountant is as "creative" as mine.  🙂  Good luck with all of this.

[Ben551]

Hi @Ann72 - hey thanks for commenting. Yeah that’s the 4th change they made, tightening the options for foreign buyers. That one has actually happened already.  It’s all changing very quickly!

Accountants are all going to be very busy if the capital gains tax goes through but there is nothing they can do to fight the Bed Tax. Running costs are already super high in NZ, so adding an extra $6-7k bill will be a deal breaker for many....which is I guess what the government wants.

[Ann72]

@Ben551 , it appears they want to share the eggs the golden goose is producing in the SRL market, but it sounds as if in doing so they’ll almost kill the golden goose! Is the hotel lobby behind this?

[Ben551]

@Ann72  as far as I understand, it’s all part of the governments long term plan to combat the housing crisis in NZ. So I think their focus is to get housing stock out of the STR market and back into the regular market.

Rightly or wrongly, it seems the NZ government would rather have people with continuous excess space “sell up and downsize” to put larger homes back into circulation for families.

The problem is, I think reducing the size of the STR market will have an impact on the country’s ability to support tourism demand. Some cities like Christchurch and Wellington (major cities for tourism) cannot keep up with demand for tourist accomodation. This is mostly because of Earthquake damaged or demolished hotels. For example, this past weekend Wellington “ran out” of both hotel and Airbnb accomodation. Desperate people were offering money on Facebook for couches to sleep on to attend the Kapa Hakka festival... it’s slim pickings.

But it seems like the government is fixed. The number of homeless families living in emergency accomodation is staggering as a % of the total NZ population. That’s why they labelled the problem a crisis and are firing out rapid changes. As taxpayers we are paying for whole families to stay in hotels long term.... which perpetuates the issue of shortages in hotel accommodation... and encourages more Airbnb’s...which creates more shortages in homes...and round and round we go. 

In writing this, I may have decided it’s not a bad priority to target overseas ownership and STR’s to break the cycle in NZ.

[Ann72]

@Ben551 As I read it I came to the same realization as you did - it's forward-thinking, in aid of New Zealand priorities (which as I understand it in the big picture is also to protect certain lands, so new building may be limited in areas?), and that's all to the good.

Regarding a creative accountant, though - it's not that they would fight the Bed Tax, but that such an accountant would be able to find other ways to offset the additional tax burden that imposes.  Mine is very good that way.  I always tell him that my tax returns (one for my primary business, one for my LLC, which covers the Airbnb properties, and one for myself) read like Russian novels.  Complex plots, totally engrossing, but one can never keep the names straight.  🙂

[Ben551]

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@Ann72 wrote:

I always tell him that my tax returns (one for my primary business, one for my LLC, which covers the Airbnb properties, and one for myself) read like Russian novels.  Complex plots, totally engrossing, but one can never keep the names straight.  🙂

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Hahahahaha I love it!!

[Deborah614]

re:    "the number of homeless families living in emergency ccommmodtion is staggering... "      A friend of mine had to evict a family because they simply kept breaking the rules and having a dog on the property.   They tore a roof of his shed to use as a wall to keep said mutt in the back yard.   Mutt then digs up the garden, destroying lovingly planted trees etc.     

I have advertised my 2 spare rooms on numerous occasions only to get very  burned with delinquent house mates, giving me all sorts of headaches.    

So penalising me for Airbnb giving me the income I needed from 2 boarders, is silly.   Because the pool of homeless people doesn't present me with many 'ideal' house mates - i.e. honest, clean, tidy, respectful, and who are diligent with payment.   

The policies are going to punish the retiring baby boomers who were too late in the game to get into Kiwisaver, and who have very few options apart from house-sharing.     Airbnb is just a channel for house-sharing in my view, and it's wrong to treat it differently to having a couple of boarders.   

[Deborah614]

Why would it motivate to sell up and downsize, @Ben551   if by selling up it exposes them to a whacking great capital gains tax?     

[Ben551]

@Deborah614  Deb according to the proposal, it will be possible for hosts to opt out of capital gains tax from the point the legislation applies by not claiming deductions for property expenses. This means, they can opt to pay higher income tax on their Airbnb income, instead of hooking their asset into the CGT system.

This means hosts have a choice, they can opt out of the CGT scheme.  But achieving this “opt out” means not deducting property costs such as house insurance, house rates, mortgage interest from their annual income. Things like food, electricity, bed linen and advertising would still be deductible, just not any costs directly associated with the property asset.

For people who do this, they may well decide it’s not worth doing a short term rental and will certainly be allowed to sell up and downsize without any CGT. 

[Deborah614]

@Ben0

I will likely still end up doing B&B but not through Airbnb, which stands out like dogs thingies on bank deposits.      Airbnb's activities have caused such a furore in the commercial hospitality industry, that the big hotels and motel chains are up in arms and attacking Airbnb, trying to clip their wings.     They do this by lobbying central and local government, and they are behind this.   THEY are the ones blaming Airbnb holiday lets for taking potential homes and flats away from renters.    But renters can be so darned delinquent, and so destructive, causing damage amounting to a year's rent, and they are so difficult to legally evict, that no wonder landlords decide to go for Airbnb instead.  

 I will just take in boarders, on the basis that the rate covers everything except lunch and dinner.     

If you live in the house, and only take up to 2 boarders, it is not classed as a "boarding business".    

I was doing a small 'board' thing in a private country home, taking in boarders, for 2 spare rooms.   

[Deborah614]

I've never had more than 20 days a year business on Airbnb because until now I only had 1 double bed.   But if that increases to the point where I need to pay tax, then I will likely put in all the receipts for bed linen, breakfast and other foods and beverages, mileage on vehicle to do the shopping trips to get stocks in for guests, etc etc.   I'm starting to keep all my receipts.  

So, if you are going to opt to pay CGT, then also set up your business and claim the 15% GST on the part of your property asset - your cottage - and a portion of the land.   Whatever you use for the operation of your Airbnb business.   So if your cottage and land portion is worth $100,000, you can claim a GST refund from IRD of $15,000.    Mind you, when you sell the business and then estimate the value of the GST, you'll have to repay that back, and it's highly likely you'll pay more than $15k back, because of the increase in the value of that business asset.  

[Deborah614]

@Ben551  

Well,  if we decide to opt out of the CGT and not claim rates, insurance, interest, I imagine we could calculate the higher tax to pay, and could choose to pass those costs onto guests instead.    

I'm grappling with how a host who provides a wide choice for breakfast, would claim the cost of those groceries.    Would you put one lot of milk, cereal, croissants, fruit, chocolates, cleaning products etc, for the business through the checkout and get the receipt, and then put another lot through the checkout for your own pantry.   

I heard that IRD HATES b&b operators because it is just impossible to decide how much of that bleach is for the guest cleaning and how much is for your cleaning.      

[Ben551]

Hi @Deborah614 ! Good to hear from you.

I always try to keep separate receipts for groceries, since the tax man prefers it. I also keep all the Airbnb cleaning products, toilet paper, towels, pantry items... in a separate larder I built just for that purpose. I suppose you could say I have an Airbnb storage room. The tax man also allows me to include the floor area of that storage room as part of the Airbnb business, which I use to allocate things like electricity, internet costs, contents insurance, alarm monitoring... etc. For now I am also claiming home insurance, rates and mortgage interest... however, having done the math, I will stop claiming for those when the time comes, to avoid CGT.

[Emma614]

Yes hotel lobbying definitely behind this!  They pushed for the Auckland Council to include all online accommodation providers to be charged APTR (it's not really a bed tax like other countries) & commercial business rates.  For many with the retrospective nature and lack of communication to hosts here, people have been put in debt as the charges are way more than what they actually earned!!  Also unlike the UK, you are taxed on every dollar you earn so those of us that only earn a small amount still gets penalised no matter what!  We've decided to stop listing in light of all these changes and especially as the Council keep changing the goal posts!  The Mayor of Auckland also got campaign money from a prominent Chinese hotel developer!  So he's obviously in their pockets!!  Like Robin Williams said, politicians and those in power should wear sponsor jackets so we know who owns them!!