If you receive income, you must pay tax. So if you have rental income, you have to pay tax on it, right? Maybe, maybe not – if you receive rent from boarders.
When you get income from boarders, your tax position depends on how many boarders you have, and how much you charge, compared with Inland Revenue's standard-cost method. In other words:
|If you have . . .
||Then the standard 2017 cost is . . .
|One or two boarders
||$263 a week for each
|Three or four boarders
||$263 for boarders one and two, and
$215 for boarders three and four
If you charge less than standard-cost figures for four or fewer boarders, you don't have to declare that income and you cannot claim any loss.
If you charge more than the IRD standard-cost amounts, or you have five or more boarders, you may have to pay tax. Your return must not only show all payments received, but list actual costs, backed up by full documentation (this is called the actual-cost method).
If you and your spouse or partner have boarders and tax is payable, the person who's most directly involved each day should declare the income.
If you get your income for board in advance, it's taxable in the year in which you receive it.
Owning property for generating rental income is a taxable activity, even though it is not usually classified as carrying on a business.
Expenses relating to the rental property can be claimed, such as:
Rates and insurance
Fees or commission
Repairs and maintenance
Related motor vehicle and travel expenses
Mortgage repayment insurance
Accounting costs for preparation of related accounts
Depreciation (excluding the building)
Rental income received in advance is taxable in the year you receive it.
The tenancy bond is not taxable, as it is passed on to Tenancy Services. Any amounts paid to the landlord for damages when the tenants leave is taxable income.
You cannot charge GST on rent, or claim it on the property's purchase price or ongoing rental costs. When you claim deductions, you use the cost of the expense, including GST. However, that's not the case for homestays, farm stays, bed-and-breakfast businesses, short-term stays (think Airbnb) and other types of commercial dwelling.
If you would like to have a chat with us about your sources of rental income or the expenses you can claim, please drop us a line - we'll be happy to assist.