Will interest still be deductible on short stay accommodation?

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09-04-2021, 05:18 PM
Ohdoyle

Will interest still be deductible on short stay accommodation?

One issue with the new tax changes I am wondering if interest will still be an allowable expense for air bnb?

Theres two scenarios here. 1 is the people who rent out rooms in there own home. Realistically these people either arent paying tax or will use the standard cost method so no real affect here

The second option is people who rent out the whole house on air bnb etc. (Still not gst registered ). I am wondering if these people will no longer be able to claim interest as an expense.

Logically I am assuming not.... but the IRD has previously treated short stay and long stay differently (gst) therefore wondering if this might be a loophole. I havent found any commentary on this issue.
09-04-2021, 05:46 PM
iceman

Quote:

Originally Posted by Ohdoyle

One issue with the new tax changes I am wondering if interest will still be an allowable expense for air bnb?

Theres two scenarios here. 1 is the people who rent out rooms in there own home. Realistically these people either arent paying tax or will use the standard cost method so no real affect here

The second option is people who rent out the whole house on air bnb etc. (Still not gst registered ). I am wondering if these people will no longer be able to claim interest as an expense.

Logically I am assuming not.... but the IRD has previously treated short stay and long stay differently (gst) therefore wondering if this might be a loophole. I havent found any commentary on this issue.

I have seen some discussion on forums on your "second issue" with regards to airbnb.
It seems to be the general understanding that such "rentals" are not caught in the tax deductibility issue, just like motels and many such accommodation providers are not.
09-04-2021, 08:13 PM
fungus pudding

Quote:

Originally Posted by iceman

I have seen some discussion on forums on your "second issue" with regards to airbnb.
It seems to be the general understanding that such "rentals" are not caught in the tax deductibility issue, just like motels and many such accommodation providers are not.

Whose general understanding? Owning flats etc. is considered by the IRD to be an investment, not a business. Motels are considered to be a business. I imagine a B+B operator could quite legitimately claim to be a business if there is s steady turnover of occupants involving cleaning, provision of linen, provisioning of toilets etc. Just make sure your clients don't stay too long while they complete a university degree or similar and you should be okay.
10-04-2021, 07:21 AM
iceman

Quote:

Originally Posted by fungus pudding

Whose general understanding? Owning flats etc. is considered by the IRD to be an investment, not a business. Motels are considered to be a business. I imagine a B+B operator could quite legitimately claim to be a business if there is s steady turnover of occupants involving cleaning, provision of linen, provisioning of toilets etc. Just make sure your clients don't stay too long while they complete a university degree or similar and you should be okay.

As I said, it was chatter on a property investors forum that I occasionally read that I referred to. Many have made comments there stating that they run AIRBNB as a business and more are suggesting they are planning to do the same, rather than a long term tenancy.
I haven;t looked into it myself as it doesn't apply to me and therefore have no idea whether these people are correct or not. If it was something I seriously wanted to find out about, I would be contacting my accountant !!
10-04-2021, 11:14 AM
artemis

Possible that the new 'main home' rules will apply. These are set out in the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 in relation to the bright line test. The interest deduction details are pie in the sky so far but hard to see the new 'main home' definition will not apply.

But who knows, some normal rules around rentals are now screwed.
10-04-2021, 02:19 PM
Waltzing

wrong thread.
13-04-2021, 04:21 PM
Aaron

Would moving a relocatable house onto a section be considered a "new build"?

Where is the legislation? has it even been written up yet? Deductibility of interest on a new build isn't a given just yet either is it?
14-04-2021, 12:58 PM
artemis

Quote:

Originally Posted by Aaron

Would moving a relocatable house onto a section be considered a "new build"?

Where is the legislation? has it even been written up yet? Deductibility of interest on a new build isn't a given just yet either is it?

What is a new build is being consulted on. IOW they don't know yet. It is less straightforward than might first appear. Numerous scenarios have been raised over on the big NZ property investors FB page (including yours), and most are saying their projects are on hold. I believe the Property Investors Federation is making a list. They will for sure be included in the consultation.

Another layer of complexity, uncertainty and bureaucracy coming up.
14-04-2021, 01:39 PM
Aaron

Quote:

Originally Posted by artemis

What is a new build is being consulted on. IOW they don't know yet. It is less straightforward than might first appear. Numerous scenarios have been raised over on the big NZ property investors FB page (including yours), and most are saying their projects are on hold. I believe the Property Investors Federation is making a list. They will for sure be included in the consultation.

Another layer of complexity, uncertainty and bureaucracy coming up.

Thanks for that, I thought that a lot of this is still up in the air. Hard to know what to do as over the life of the investment, if borrowing, the interest claim could be quite significant. Maybe if central banks get what they want interest rates will stay low and continued asset and CPI rises will get rid of the debt quickly anyway so it is not such a big issue.

As always too bad for people without assets and it will show even these more recent govt changes are only tinkering when the underlying problem is monetary policy and the perceived free lunch being provided by inflation.

Policy makers are probably quickly reading the property investors website to close all the loopholes they didn't foresee, such as husband and wife owning a property each, AirBnb's are in "residential Houses" so can't be considered along with hotels and motels etc. The more people try to get around the rules the more complicated they become.