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Renting your holiday home tax changes

October 11th, 2012 | Posted by Wendy Simpson-Fox in Accountant in Auckland | Rental property taxation

000020042043“I’ve had a holiday, and I’d like to take it up professionally” so it’s rather cruel that my profession is far more concerned with the tax laws surrounding holiday homes than the actual holiday part.  Moreover, there have been so many changes to the tax laws lately that any decent accountant should be gasping for a holiday by now.

So what are the tax changes that you, as a holiday home owner, need to know about if you rent out your bach, crib or pocket-sized palazzo? 

  1. Hopefully you’re already up to speed about the building depreciation claim being wiped out but another major change is on its way.
  2. Many holiday home owners will be shocked to realise that (from 2013/14) the rest of their claims (such as rates, interest, insurance and repairs) are set to reduce dramatically too:
  • In a nutshell, the new rules care only about the number of days the holiday home is actually used.  It no longer matters if your property is available to rent for most of the year.  It’s about the actual days used and not availability.
  • What does this mean for you?  Lets say that during the year you use your holiday home for 42 days, rent it out for 28 days and leave it sitting empty (but available to be rented) for the rest of the year (a chunky 295 days):
  • – Under the old rules you would’ve been able to claim 88% of your costs  (28+295 divided by 365 days)
  • – Under the new rules you’ll only be able to claim 40% of your costs  (28 divided by 28+42)
  • If you typically claim around $30,000 of expenses then your claim is going to seriously deminish to a measly $13,000 which, as I’m sure you’ve guessed already, could easily result in a nasty tax bill.

Also worth knowing:

  • The new rules apply where the asset is unused for more than 62 days a year (for private or income).
  • There may be an opt out clause for losses or if the annual income from rental is under $4,000 (exempt income with expenditure non-deductible).
  • If the gross income from your bach is less than $2,000 of it’s registered valuation, any loss won’t be able to be offset against your other income (ringfenced).

Apart from these Mixed-Use developments (the technical name for all this) you may also:

  1. Need to register for GST if your rent is more than $60,000.  The $60,000 includes not only the actual rent you receive but also the proper market value of any cheap rent or free use (including use by you, your friends and family).  This can add up pretty quickly especially if you have a couple of holiday homes.
  2. Lose your Working For Families entitlements because the IRD now see’s taxpayers who have five or more rental properties as carrying on a business.

NB.  Please note that the Taxation bill was introduced into Parliament on 13 September 2012 and it applies to holiday homes, boats and aircraft that are used by the owner privately and to earn income.  The bill is set to apply from the start of the 2013-14 income year for holiday homes which has already begun for taxpayers with early balance dates (and for 2014-2015 for boats and aircraft)

“I’ve had a holiday, and I’d like to take it up professionally” (Kylie Minogue)

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