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Holiday homes tax rules are here to stay

Are you planning to rent out your home during the upcoming summer holiday period?

Holidays are not necessarily a time when people think about tax matters but there are a few things about which you should be well informed.

If you plan to rent out your holiday home over summer either while you are away or for special events, then you may need to declare your income in your income tax return and apportion some of your expense claims.

You must file a tax return including the net profit from your rental activity.

‘Net profit’ means your gross rents, minus any expenses that helped you earn your income. Examples of deductible expenses are rates, house and contents, insurance, mortgage interest, fees paid to an agent for collecting the rent, and repairs and maintenance (but not costs of any improvements).

You must also be aware of the new tax rules for ‘mixed-use’ holiday homes that take effect from the beginning of the 2013-2014 Tax Year.

These rules apply to those with property for ‘private use’ and ‘income-earning use,’ and unoccupied for 62 days or more. The new rules do not apply if your property is a residential property used for long-term rental.

Private use of your property means that it is used by you or your family (even if rent is paid) or used by non-associated people if you earn rent at less than 80% of market rates.

Income-earning use of your property means use by a non-associated person from which you earn rent at 80% or more of market rates.

You must pay income tax on rent earned from income-earning use.

Any rent from private use is exempt from income tax.

Some expenses are fully deductible but you must apportion any expenses which relate to both income-earning use and private use.

If your income from income-earning use is less than $4000 for the year, you can opt to keep the holiday home outside the tax system. That means your rental activity need not be included in your income tax return.

For further information, read our Factsheet Tax Rules for Holiday Homes (IR 1021) on our website www.ird.govt.nz (keyword: ir1021).

Free Workshops

If you are in business, you may like to attend one of our free tax seminars or workshops held in various parts of the country. Please visit our website for details.

Abdul Rafik is Inland Revenue’s Community Compliance Officer based in Auckland. He will answer your queries emailed to venkat@indiannewslink.co.nz

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