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01 Feb 2018
Sounds easy doesn’t it? But what do you need to consider before you get started?
Before splashing out on that paint and wallpaper let’s consider whether you can claim back these expenses in your tax return, and whether or not you need to declare the rents earned to Inland Revenue.
There are different rules depending on whether your property is rented out full-time, or some of the time, (which is referred to as income earning use), or if you stay in it sometimes yourself, (referred to as private use). A mixture of both income earning and private use is termed a mixed-use holiday home. If the home is vacant for 62 days or more during a tax year it falls into this category, and if you earn less than $4,000 rent from it then you don’t need to declare this income in your tax return.
You are able to claim for rates, insurance, cleaning and advertising expenses, however you can only claim them for the time relating to the period you rented the space out. For example, if you rented out your family home for 4 weeks over the summer you can only claim 4 week’s of these expenses.
If you are making improvements to a property to make it lettable and this increases the capital value of that property, then technically these expenses are not claimable.
However if your property was already rented out and you needed to replace the carpet, that expense could be claimable as you are replacing an existing fitting or fixture. This is a bit of a minefield but in general terms, if you need to fix something in the property it is claimable and this could include things like repairing water pumps, electrical repairs and grounds maintenance.
The Inland Revenue website provides further information on what is claimable and what isn’t, or talk to your accountant or business adviser.
Other things you should consider before renting your property out over the summer are:
Health & Safety
A holiday rental house is not covered by the Residential Tenancies Act so you will need to create your own written agreement outlining your terms and conditions, unless you are using a hosting site like Airbnb which includes them. Agreements should cover things like:
Renting out part of the home you are currently living in, such as Airbnb, flatmates, boarders, is another tax minefield, with completely different rules. IRD have published a facts sheet (IR1037) which provides some guidance, though your accountant can assist you to interpret them.
We would recommend you keep good records of any expenditure and discuss your plans with your accountant before embarking on any rental ventures.
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