Tax & GST for AirBnB Hosts

AirBnB

When this concept first came out, it was a source of extra cash to help pay off their mortgage, pay the bills and fund the family getaway

In a few short years, this concept of home sharing has become widely received by holiday makers and hosts. In 2017, AirBnb guests are said to have contributed $660 million in GDP and more than 6000 full-time equivalent jobs.

WARNING

With this escalation of popularity, the AirBnb industry has also attracted the attention of the Inland Revenue. Providing short term accommodation is a taxable activity and using an online platform to arrange short term accommodation generates readily accessible electronic records.

So, if you want to become an AirBnB host, make sure you are aware of your income tax and GST obligations. Make sure you have a good accountant who understands the industry.

We will cover Income Tax in this blog. GST is covered separately as it is such a big topic.

MIXED USE APPORTIONMENT (MUA)

You have an MUA if, during the tax year,

  • the asset is used for both private use and income earning use, and
  • it is also unused for 62 days or more.

Some Definitions:

“Private Use” means

  • the MUA is used by you, your family or associated people, whether you receive income from the asset
  • Non-associated people if you receive income of less than 80% of market rates

Income received for private use is exempt income and expenses for private use are not deductible.

“Income-Earning Use” means the use by a non-associated person paying you at 80% or more of market value. Income -earning days also include the time you spend, either occupying, or using the asset to repair the damage occurred during the income -earning days

“Counted Days” are those days when the asset is in use for other than income-earning purpose

 

THE FORMULA

Income-Earning Days

Income-Earning Days +Counted days

Let’s use Jack and Jill as an example. They stay in their mountain chalet 50 days in a year, 150 income earning days and 165 days the chalet is not used. They used the AirBnB online booking and incurs $300 in fees and they also hire the services of management company. Management fees come to $700 per year. Other costs including power, interest, insurance and rates total $20,000.

They rent their chalet for $350 per night for 150 days to unrelated guests

 

           Costs Deductibility

Direct Costs Fully Deductible

Online Booking fee        $300

Managers Fee                $700

  $1,000

 

Mixed Use Costs

20,000 x 150/(150+50)=                                  $15,000

Total Cost                                                             $16,000

Income $300*150                                               $45,000

Profit                                                                      $29,000