Is renting my house out while I’m away is a good idea?? There are many ways that you can rent your place out whilst you’re away to get some income to cover your holiday like Airbnb – there’s nothing wrong with that right?
Well actually it’s not quite that simple as there are a number of things you need to consider and some have some big ramifications. We’re not saying it’s a bad idea or you shouldn’t do it but we caution you to do your homework first so that you can make an informed decision as to the cost/effort vs return.
IRD: renting out a room in your house while you are still living there to a person who is also going to be living there is different to renting out a room for short term holiday stay. The IRD view B&B stays as running a business and all business activities are subject to tax and returns must be filed. Yes you can claim legitimate expenses (or a proportion thereof) directly associated with that business but you must still declare the income.
Another dangerous area GST – “You must register for GST if you carry out a taxable activity and your turnover was $60,000 or more in the last 12 months or will be $60,000 or more in the next 12 months”. Now if you have a high end property for which you are able to charge large rentals or if you have a good occupancy on your room(s) then you could easily reach $60,000 in which case you need to register and charge and return GST. There is also a question in regards to GST when the property is ever sold but this needs deeper discussion.
Another stumbling block is Provisional Tax: “Anyone who pays income tax may need to pay provisional tax…. Provisional taxpayers often earn: •self-employed income •rental income…” What this means is that if for any reason you have $2,500 of tax to pay at the end of the year from your last income tax return, you’ll have to pay provisional tax the following year. This means that you will be assessed based upon the previous year’s return and have to make instalments during the year to pay the amount assessed.
Insurance: Insurance expert Sam Kerr from Seneca (www.senecagroup.co.nz) advises – Like many other industries the insurance industry is scrambling to keep up with the challenges posed by the sharing economy. With homeowners now able to rent out part of or their entire home the challenge from an insurance perspective is really when is a house not a home?
At present there is no standard policy that covers casual letting and most insurers deal with it on a case by case basis as to whether it still fits in to a house policy or whether a commercial cover needs to be placed. Generally speaking the insurers want to know as much as possible on how you intend to rent your rooms with some allowing up to 50% of the house being let on a permanent basis.
Under standard policies letting out your home either as a long term rental or as an Airbnb is considered a “material fact” which in turn needs to be disclosed to your insurer. Failure to do so will mean that an insurer can cancel the policy from its inception or can decline a claim in light of this.
Council: Your house is residential as you live there and you therefore pay residential rates however should you be renting the house out for short term lets whilst away or running a B&B room rent situation the Council may consider your house a commercial property. Each Council sets their own rules as to amount/time etc but if they conclude it is a commercial property then you will need to pay commercial rates.
Should council decide that it is commercial then not only do rates change but consents may be needed and approval applied for and granted.
Lawyer: If on a cross-lease or unit title you may find yourself in breach if you do short term rentals. You need to get your lawyer to check the agreement before undertaking short term leases.
In a nutshell: If you are thinking about using your home to generate income then we suggest to contact the relevant agencies to discuss what you are doing and the steps you need to do to comply with conditions and regulations, once you have all the information you can make an informed decision as to whether this is something worth pursuing.