There have recently been significant tax changes to how residential rental properties are taxed. These fundamental changes include ring-fencing of rental losses, removing interest deductibility, and increasing the bright-line test from five to ten years.
AirBnB properties are classified as residential land and therefore (most) the recent tax changes do affect AirBnB activity.
Under the definition of residential land, an Air BnB does not qualify as a commercial property as the land used is not used predominantly as a business premises. This is the same for all properties being used for short term rental accommodation (Air BnB, Book-a-Bach, etc).
However, if there are 4 or more units owned and they are managed, there would be an argument that this would qualify as commercial as you would be moving into a motel/hotel scenario.
Essentially what this means for clients who own property they are using as an Air BnB or other short term rental accommodation is that:
- Losses must be ring-fenced
- Depreciation on buildings can’t be claimed
- Bright-Line rules apply (for properties purchased on or after 29 March 2018)
- Property will fall under the new interest deductibility rules that come into effect from 1 October 2021 (assuming legislation is passed)
Contact Us
Contact Tim Doyle or Jane Evans today for a no obligation phone call or meeting on 07 823 4980 or contact us. Our office is in Cambridge, NZ, but distance is no problem. We have many international and national clients.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
