GST and AirBNB

GST and AirBNB

GST and AirBNB

Some homeowners are being impacted by GST and AirBNB. We have put together a blog covering some of these issues to ensure that people think carefully before becoming an AirBNB host.

AirBNB is proving to be a very popular way of generating some spare cash for homeowners with spare bedrooms. The online platform has been growing exponentially worldwide and many New Zealanders are also taking advantage of it. It’s causing quite a bit of disruption in the hospitality industry.

Residential rentals don’t attract GST as residential rent is specifically excluded in the legislation. Inland Revenue refer to it as an “exempt supply”.

As a result, a lot of people think that income from AirBNB is also exempt from GST. After all, they are offering accommodation in a residential home.

The IRD disagrees.

They view AirBNB transactions as offering accommodation on a short-term basis. Your guests won’t be occupying the house as their “primary place of residence”, a key part definition of the term “dwelling” . As such, its highly likely that by offering AirBNB, your “dwelling” will become a commercial operation.

At present, the compulsory threshold for registering for GST is $60,000, so if your income from AirBNB is likely to exceed this amount during any 12 month period, you must register.

This will mean accounting for GST on the money your receive through AirBNB, and filing a GST return two-monthly or six-monthly.

That all seems fair enough, but there are other considerations.

What if I’m already GST registered?

If you are already GST registered as a sole trader for another unrelated activity, and you own your home in your own name, your AirBNB income would become part of your GST activity.

That would mean that your home would fall into the GST net.

Very careful consideration is needed by anyone contemplating AirBNB in these circumstances.

Claim for Second Hand Goods

You would be entitled to claim back the GST costs paid when you acquired your home. There are some very specific rules around just how much you can claim with each GST return. The amount of GST that can be claimed is determined on the percentage of business use.

Structure

If your home is owned by a Trust or a company, there may be a requirement to charge a “deemed market rental” for a proportion of the home dedicated to private use. GST would be charged on this figure.

Changing your Mind

If you trigger the GST threshold but subsequently decide to stop offering AirBNB accommodation, you would probably decide to deregister from GST.

You’d file a final GST return and that would be the end of it. Right?

Wrong. Even though you haven’t sold your house, you trigger an obligation to pay GST on the market value of your home. That could be a great deal of money.

Of course if you happen to sell your home, the same rules would apply.

The exception here is if you sold your home to someone who is also GST registered and the purchaser continued to use the property as a “taxable supply”. In this case the transaction would be zero rated for GST.

In conclusion

Registering for GST has very significant consequences, some of which might be unintended. We strongly recommend you seek advice on this matter.

This article is specific to GST. There are income tax considerations with AirBNB which we will cover in another blog. This article is general in nature and current at the time of publication. You should always seek advice specific to your circumstances. 

 

Angus is the CEO and founder of Generate Accounting.