Proposed Tax Changes
This week's blog is from Gary Riggs, our Board Member - Finance. The information contained in this blog is in the nature of commentary on media reports only. It is not intended that members act thereon.
IRD proposed expense claim option
Members may have read that Inland Revenue has published a proposal for a simplified basis of claiming expenses by Airbnb and others doing short stays, as an alternative to claiming actual costs. That is, a standard $50.00 per room per night where a third party booking agency such as Booking.comand Expedia is involved, otherwise $45 per room where let directly by operators. The deduction should logically be per person per night, not per room. For small operators this proposal may encourage more small operators who don’t file income tax returns to do so. That is what IRD will be hoping.
The deduction is not generous but small operators are saved the cost of record keeping which many will not be good at. Members who have few guests and basic expenses only may wish to consider this option. It is easy to check if this is the case by calculating the total deduction for expenses under this option by multiplying the number of room nights for the last financial year by $50 or $45, as the case may be, and comparing the total with your actual costs as shown in your financial statements in the last financial year. If the simplified basis is to be used in future then the cost of preparing a tax return will be reduced.
Surprisingly IRD officers do not have any knowledge of this option so we can only report on what has appeared in the news media. It is a case of wait and see.
Capital Gains Tax (CGT)
It is not the first time this has been raised but certainly the first time in living memory that a tax working group has prepared a comprehensive report for government recommending such an extensive coverage for CGT.
Media coverage of this indicates that there is a clear recommendation that family homes be exempt but that could be forfeited where rooms are rented out short term. If the property was used as a home more than 50% of the time it would fall under the category of a family home and the owner would not pay capital gains tax on sale but the homeowner would not be able to claim any deductions for costs relating to the property. If however the owners wanted to claim deductions the property would then be subject to CGT on sale. Holiday homes and baches would also be adversely affected.
This is in addition to many local councils now applying targeted and commercial rates. It has the potential to adversely affect our tourism industry.
Much discussion will take place both within government and by affected organisations lobbying on this before any decisions are made to proceed with legislation. Again, a case of wait and see before reacting.
Board Member - Finance
19 March 2019