Income tax scenarios and issues you need to know

Short-stay accommodation has become increasingly popular, with many property owners renting out their properties, including their own homes or rooms in their homes.

The rise in short-stay accommodation is likely to continue with borders reopening and tourism increasing.

However, with this rise in short-stay accommodation comes various income tax scenarios and issues that both property owners and those working with clients in this area need to be aware of.

Understanding these issues is crucial for ensuring compliance with income tax rules and regulations and avoiding any penalties or legal issues.

One of the significant income tax issues facing property owners who let out their property as short-stay accommodation is the practical application of income tax rules.

The income derived from renting out property is taxable, and property owners must report their income to the Inland Revenue Department (IRD). Property owners must also keep accurate records of their income and expenses, including any deductions claimed.

Another issue that property owners need to be aware of is the mixed-use asset rules. If a property is used both for personal and income-producing purposes, such as short-stay accommodation, then the income and expenses need to be apportioned accordingly.

Additionally, recent income tax law changes, such as the bright-line and interest deductibility rules, have implications for short-stay accommodation properties. Property owners must understand how these changes impact their income tax obligations and ensure compliance.

Whilst operating short-stay accommodation is an attractive option for property owners, it is essential to understand the income tax scenarios and issues that come with it. Compliance with income tax rules and regulations is crucial for avoiding penalties or legal issues.

If you are a property owner, it is crucial to seek professional advice and stay up-to-date with any income tax law changes that may impact your income tax obligations.

If you have any questions about the rules or would like to discuss your particular circumstances, please contact Alliott NZ in Auckland on +64 9 520 9200.