What’s New for Property Owners: Airbnb to Boarders

What’s New for Property Owners: Airbnb to Boarders

If you own a property which is being rented out for short stays (up to four weeks) this article will highlight all your necessary tax commitments, as well as all the new property rules which might come into effect this financial year.

Highlights:

  • If your tax due at the end of the year is $2500, you will have to pay provisional tax instalments from the following year.
  • If you’re earned income is more than $60,000 per year, from taxable activities, it is mandatory for you to register for GST.

It would be wise here, given the choice, for you to consider whether registering for GST is the best option for you. Once you’ve registered for GST, there are on-going requirements like record keeping, invoicing and filing returns which must be maintained. Once you’ve registered for GST, it also means that the sale of that property, or even the discontinuation of services, will still be liable to GST. For more insight to help you make the right decision, you can call us for advice.

If you own a property where you host boarders, you need to choose between the standard-cost method and the actual cost method to work out the income you make from boarders so you know how much tax to pay.

The standard-cost method keeps things simple, because when your income from a boarder is equal to or below the standard costs, it’s exempted from tax. You can also claim standard costs instead of claiming on actual expenses. The weekly standard cost per boarder has been changed to $186 per week for the 2019/20 tax year. The standard cost includes everything from food, household bills, gifts, and entertainment and activities that you provide for the boarder. You’ll also need to calculate your annual hosting and transport costs.

In case you’re hosting five or more boarders at your property, the actual-cost method must be used. If you’re hosting up to four boarders you can then choose to claim actual costs instead of standard costs. When using the actual cost method, all the income generated from the rental is considered to be assessable income and must be declared. While using the actual cost method to calculate your income you will have to:

  • Keep full records of your actual income
  • Keep full records of your expenses
  • Fill out an IR3 annual tax return to return income and claim actual expenditure incurred.

In case your return hasn’t been completed before the due date for filing, the IRD will assume that you have picked the standard-cost method.

It is however recommended to keep and maintain your records, because it might be heard to ascertain until the end of the tax year whether you want to use the standard cost or actual cost method. You can jot down the number of weeks you had boarders, the total income generated from these boarders, cost of capital improvements or rent paid, kilometres you’ve travelled transporting them, and any other related expenses.

If you need assistance with selecting the right method to calculate the income made from boarders the applicable taxes on it, feel free to get in touch with us by mailing info@jzr.co.nz or call us on +64-9-972-2236.

Written by Rowain Pereira

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Are You a Landlord? Keep-up with the Changes

Are You a Landlord? Keep-up with the Changes

With one third of Kiwi’s renting their homes (some even for a lifetime), it’s important to have clear and fair rules for tenancies. This article will highlight some of the recent changes that have been made to rental property rules.

The government’s tenancy law reforms announced towards the end of 2019 are aimed at mainly protecting security and stability of tenancies for tenants. The Residential Tenancies Amendment Bill is making its way through Parliament and is currently with the Select Committee before moving on the to the next stage, the Second Reading.

If you’re a landlord:

  • Rent can only be increased once in twelve months, as opposed to six.
  • Tenants cannot be evicted without reason. Currently, periodic tenancy agreements can be terminated without reason, if you give your tenant 90 days’ notice. However, now you must select a reason from a list by the Residential Tenancies Act, stating a reason for the termination of the agreement.
  • Tenants will now be able to add minor fittings such as brackets to secure furniture against earthquakes, baby-proofing the property, installation of visual fire alarms or doorbells, or hang pictures.
  • Rental “bidding wars” will be banned.
  • The Tenancy Tribunal will be able to award compensation or order work to be done up to a value of $100,000 (instead of $50,000).
  • New tools will be available to help you take direct action against any tenants breaking the rules.

In context to damages, methamphetamine, and unlawful rental premises, the following changes will now be applicable:

  • If tenants (or their guests) damage your rental property as a result of careless behaviour, they will directly be liable. They can be charged up to a maximum of four weeks of rent or your insurance excess (whichever is lower).
  • If you have insurance, you must include this (and the excess) in any new tenancy agreement. A copy of the policy agreement should also be made available to the tenant on request.
  • You can also now test for methamphetamine while your tenants are living there. They must however be given at least 48 hours’ notice (but not more than 14 days’ notice). Boarding house tenants must be given at least 24 hours’ notice.
  • All legal requirements relating to the buildings, health, and safety apply to your rental property as well. It is the duty of the landlord to ensure that the property can legally be lived in at the start of the tenancy.

If you would like advice on how to manage the income being generated from your rental properties, or if you have any queries relatives to the new amendments being made to the Residential Tenancies Bill, please feel free to reach out to us on info@jzr.co.nz or call us on +64-9-972-2236.

Written by Rowain Pereira

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Are You a New Zealand Tax Resident? Why Is It Important To Know

Are You a New Zealand Tax Resident? Why Is It Important To Know

Why is it important?

Like most other countries, one of the ways that New Zealand imposes tax is by the concept Tax Residency. It means that all New Zealand tax residents are liable to pay tax to the Inland Revenue Department (IRD) on their worldwide income.

Your worldwide income includes any income that you derive in a foreign country even if you do not bring the money into New Zealand.

This is very important because it will drastically change the amount of tax you will have to pay to the IRD. This will be particularly relevant if you have significant assets overseas, or if you’re a new migrant to New Zealand, who still have financial ties to your country of origin.

Your worldwide income could include the following:

  • An amount of interest you derive from funds you have in an offshore bank account
  • Rental income (a rental property in Australia? Or China?)
  • Salary and wages paid both by New Zealand companies and offshore companies

Common Misconception

A common misconception that people have is that they confuse the definition of “resident” for immigration purposes with “tax resident” for tax purposes. The definition of a New Zealand resident for immigration purposes is different to the definition of “tax resident”, which is defined in the Income Tax Act 2007. What this means is that whilst you may be on a student or work visa in New Zealand, you might still nonetheless be considered a tax resident of New Zealand. Conversely, you might hold a permanent resident visa but, in some circumstances, still not be a tax resident of New Zealand.

Therefore, this leads us to the next question.

What is the definition of a “tax resident”?

If you want to find out if you are a New Zealand tax resident or not, then you have to look at the definition in sYA1 of the Income Tax Act 2007. Essentially, if you meet either one of points below, then you will be a tax resident of New Zealand.

  1. Be physically present in New Zealand for 183 days in any 12 month period; OR
  1. Have a Permanent Place of Abode (PPOA) in New Zealand

Things to watch out for

Note how the first point mentions that the 183 days is counted in any 12 month period. So it’s not 183 days in a calendar year or tax year. This is an important distinction because you could have triggered this inadvertently if you’re not careful.

The term “Permanent Place of Abode” in layman’s terms is a lasting or enduring place where the taxpayer usually live. A person could have more than one permanent place of abode in different countries. So say if you split your time between New Zealand and Australia, and have a regular place to live in each country, then it could be very possible that you have a permanent place of abode in both New Zealand and Australia.

Common Issues

Properties Owned Overseas

Being a New Zealand tax resident not only means that you will need to pay tax on your overseas income, but it also means that New Zealand tax law apply to your overseas assets as well.

Many of you might have heard of the bright-line test for residential properties, where if you buy and sell within 5 years, then you will need to pay tax on the capital. However, not many people know that if you’re a New Zealand tax resident, then this rule applies to your properties owned overseas as well. So if you bought and sold a residential property in Australia for example, within 5 years after 29 March 2018, then you will need to report that gain to the IRD and pay tax on it.

Rental or Business Income from overseas

Another common issue that we see is clients having rental properties or business income from overseas. In that situation, taxes might have already been paid in that foreign country, and in order to avoid double taxation, we can help you determine if a foreign tax credit might be available and then to accurately ascertain that tax credit amount to reduce your tax payable.

Own shares in a foreign company?

Another common issue that some clients face is if they also own shares in an overseas company. In particular, if they own shares in an overseas privately held company. There are separate rules dealing with such cases which can be very complex and you might need to pay tax on paper gains which you have not received a cash receipt for. So be very careful in that case, and contact us to make sure all the right disclosures are made to the IRD, and that you’re not paying more tax than you should.

Transitional Resident

There is another rule called the “transitional resident” rule, which exempts overseas income from taxation within 4 years of a person first becoming a New Zealand tax resident. There are some strict rules around who can qualify for this, and when the 4 years start and when it ends. There are also some exceptions to this transitional resident rule. So please make sure to contact us if you’re in this situation and we can help you determine which rules apply to you. This could potentially mean thousands if not tens or hundreds of thousands of dollars. So getting the right advice is crucial.

We hope this answers all your queries. Watch this space and stay tuned, because we will be back to talk about what happens when you’re a tax resident in New Zealand as well as another country.

Written by Gordon

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REMINDER: Rental losses ring- fenced from 2019/2020 tax year

REMINDER: Rental losses ring- fenced from 2019/2020 tax year

The new law on ring-fencing rental losses is now in force, which means:

  • In most cases ring-fenced deductions will be carried forward and can only be used against residential rental or sale of property income in future years.
  • Property investors will, in most cases, no longer be able to reduce their tax liability by offsetting residential rental property deductions against their other income, such as salary or wages, or business income.

What does this mean? Here’s an example to guide you through: 
Tony owns a three bedroom rental property in Pakuranga, which he lets out at $570 per week. After paying the interest on his mortgage, property management fees, rates and other outgoings, he ends up with a $3,000 tax loss. Tony also works as an IT Manager for the Big Company Limited and receives a $100,000 annual salary.

Before the rule change, Tony would have been able to offset his $3,000 tax loss against his $100,000 annual salary, so that his total taxable income would be $97,000 ($100,000 – $3,000 = $97,000). This way, Tony would most likely have been able to claim a tax refund at the end of the year, because Big Company Limited would have deducted taxes from his salary at an assumed taxable income of $100,000 (rather than the actual taxable
income of $97,000).

The new rules stops that from happening. Instead, the $3,000 tax loss would be carried over to the next tax year, where it can only be offset against any rental profits / taxable property gains.

The new rules apply from the start of the 2019-2020 income year and apply to:

  • Mainly rental properties but can also include other residential land.
  • Individuals, partnerships, trusts, look-through companies and close companies.

Own a rental property? We’re happy to talk you through your tax implications so you don’t get caught out.

Written by Gordon

January 14, 2020

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Airbnb usually a tax case on its own

Airbnb usually a tax case on its own

Airbnb usually a tax case on its own

Written by Gordon

February 21, 2019

 

If you use Airbnb to provide short-term accommodation in your house in which you also live, the IRD’s “mixed-use asset (holiday home)” rules don’t apply and guests are not classed as boarders. Except when you list a whole house which is vacant for 62 days each year, mixed-use asset rules do apply and calculations differ from those for homes where the hosts also live.

 Claimable expenses

Anything you spend as an Airbnb service provider may be claimed as an expense. For shared expenses, like power and Internet, claims need to be fair and reasonable.

You can claim some home utilities, rates, insurance, and interest – and all food and other consumables that guests use. You can also claim depreciation on chattels and appliances used by guests only. You can claim some depreciation on other shared chattels and appliances, like claiming a portion of utilities.

If you spend money to keep your property attractive for guests, you can claim some of those costs.

You’ll have to apportion expenses and, to do that, you need to know:

  • The floor area used exclusively by Airbnb guests (say, 25m2)
  • The shared area used by you and Airbnb guests (say, 90m2)
  • Total of guests plus you and your family

“once you have registered for GST or deemed to be registered for GST, and for whatever reason decide to stop your Air BnB rental activity, then you will be required to de-register for GST and then pay GST on the market value of your property at the time of de-registration.”

Your apportionment calculation then is:

Guest floor area + (total shared floor area x [one divided by total guests plus family] x percentage of year you have guests). Then you divide that product by total floor area,
and the resulting figure is the apportionment percentage you use for expenses.

If your room or home was unavailable for part of the year, your calculations must reflect that.

Unlike residential rent, GST applies to Airbnb. You must register for and file GST if your turnover is $60,000 or more in the past 12 months, or will be $60,000 or more in the next 12 months.

Another very important thing to note is that once you have registered for GST or deemed to be registered for GST, and for whatever reason decide to stop your Air BnB rental activity, then you will be required to de-register for GST and then pay GST on the market value of your property at the time of de-registration.

There’s a lot to this, so we recommend that you get contact us to receive some professional tax advice.

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Capital Gains Tax Update

Capital Gains Tax Update

Capital Gains Tax Update

Written by Gordon

February 20, 2019

 

The Tax Working Group in its final report released today is recommending a broad extension of taxing capital gains, and consideration of environmental taxes, changes to personal income tax thresholds, retirement savings, and charities.

A capital gains tax is a tax on the profit from the sale of an asset. 

“Tax the capital gain on sale of land, shares, business assets, intangible assets such as intellectual property. Tax to be imposed when the asset is sold, and levied at the seller’s marginal tax rate. Assets to be valued from when the tax is imposed.”

Among its main recommendations are:

  • Tax the capital gain on sale of land, shares, business assets, intangible assets such as intellectual property. Tax to be imposed when the asset is sold, and levied at the seller’s marginal tax rate. Assets to be valued from when the tax is imposed. 
  • The tax would NOT apply to the family home, and personal assets such as cars, paintings, jewellery, and household appliances. However, a holiday home WOULD be taxed on sale.
  • The capital gain on shares in companies would be taxed but in some circumstances capital losses would also be able to be offset against other income. 
  • The capital gain on the sale of a business would be taxed, including the goodwill. 
  • Exemptions from capital gains to be granted for some “life events” such as relationship breakup, death. A family farm passed on to a family member would be covered by a rollover and there would be no tax on the capital gain. But if the family member then sells to a third party the capital gain would be taxed. 
  • No changes to income tax rates, but a recommendation to raise the income threshold for low and middle income groups, i.e they would earn more at a low or lower tax rate. 
  • No change to GST and no exemptions for certain types of products, such as food and drink. 
  • Environmental taxes: changes to the emissions trading scheme to be more like a carbon tax. Dirty taxes on solid waste to reduce volumes to landfills. Taxes on water pollution and water extraction. Tax deductions to encourage conservation. 
  • Taxation of fertiliser use. Consider congestion charges to tackle traffic issues. 
  • Recommends government take steps to encourage retirement saving for low and middle income groups through possible refunds of employer’s super tax, reduce tax rate on some KiwiSaver investments. 
  • Review taxation of charities to ensure the income from commercial activities are being used for the charitable causes they are being raised for. 
  • Give Inland Revenue extra resources for administration and enforcement. 

 

Our Thoughts

The government is currently considering the Tax Working Group’s final report and will make a decision in April. So whilst there has been no confirmation that a comprehensive capital gains tax ( “CGT” ) will be brought right now, the government has signaled very strongly that a form of capital gains tax will likely to implemented. 

What is clear is that similar to other CGT regimes around the world, it is very likely that the family home will be exempted from being taxed on capital gains. 

Furthermore, the tax working group has recommended a valuation requirement for all capital assets on the date a CGT is introduced into law. This recommendation would mean that any gains made since purchase, up until the date of CGT introduction, shouldn’t be affected by the new CGT rules.

It is also useful to keep in mind that this new tax will only ever be on capital profits. A profit, even reduced by a tax, is never a bad thing so don’t pass up on a good investment opportunity just to avoid paying tax!

We think that it’s highly likely a CGT will be introduced in NZ, and once brought in, will not likely be repealed. However, we would be very surprised if it was introduced in full in its current format, as suggested by the Tax Working Group. We will be keeping a close eye on any further developments and will be informing clients of any matters that they should be aware of. 

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