The post Airbnb Properties – Tax Impact for Change in Use appeared first on GECA Chartered Accountants.

Renting out your property through Airbnb can seem like a simple way to make a bit of extra cash without too much effort – but it’s not necessarily that straightforward.

Operating an Airbnb is a bit like running a small business. Under New Zealand law, if you’re an Airbnb operator, you are treated like a landlord and expected to pay tax on any income from your rental. You’re also expected to abide by the Health and Safety Act – which can lead to issues if you are unaware of your responsibilities.

Protect yourself, your potential guests, and your property by carefully considering the issues before you agree to rent to anyone.

Here’s what to think about before you rent your property on Airbnb:

Look at liability

Property owners can be held liable if guests receive injuries caused by a poorly maintained property. For example, if a rotten deck gives way and a guest breaks a leg, or an incorrectly installed light fitting falls and strikes someone, you could be forced to pay for their medical care and associated costs.

However, if your property is well-maintained and cared for, you should be fine. Guests are responsible for their own safety as long as your property has the relevant consents and complies with building law.

Safety and equipment

Baches – particularly those by the sea – always used to come with a couple of kayaks and a bike in the garage. These days, people are more cautious about offering recreational equipment. If you supply equipment for your guests to use, you could potentially be held liable if they are injured while using it. Again, if your equipment is well-maintained and you supply safety gear like helmets and lifejackets, you lower your risk.

Insurance issues

If you’re a responsible property owner, you probably already have insurance on your property. But your potential Airbnb rentals may not be covered under your existing policy – it’s a good idea to check before you let anyone stay. If you’re planning to rent a property regularly, your insurer may require you to take out a landlord-specific policy to cover any possible damage caused by your guests. These policies sometimes cover injuries as well – be sure to check.

Vetting and valuables

Although accidents can happen, using common sense before guests arrive can help you avoid some issues. It’s a good idea to thoroughly read reviews of guests before approving them to rent your property, remove breakables and valuables before guests arrive, and check in with guests during their stay if you can.

Want to prepare yourself before you become an Airbnb host?

Talk to one of GECA’s  qualified business advisors on 0800 758 766 or email us to find out more about your responsibilities before you start.

The post Safety first: Taking care of your guests & your property as an Airbnb host appeared first on GECA Chartered Accountants.

2. Click Tracking categories.

3. Enter the desired name of your tracking category, say, Rentals or Properties. There is also an option to enter each property name under this category.

4. Click Save.

5. Now when you reconcile your transactions you can assign payments to a particular property. The category name will appear under Why on your bank reconciliation dashboard and you can scroll down to choose a property that the transaction relates to.

6. Sometimes you can have only one receipt for expenses that relates to different properties. Say, you went to a shop and grabbed a new lamp shade for your three-bedroom house rented for a long term. You also bought a new iron for your Airbnb apartment and a kettle for your holiday home.
There are a few ways to attribute the expenses to the properties in Xero. If you use Xero Bills you can create a new bill for these expenses and while reconciling you can match that bill against the bank payment. Another easy way is to enter the receipt details at the moment you reconcile transactions in Xero. For that:

– Go to your bank account in Xero. Find the transaction then click Add details.

– Then, you can allocate expenses to your rentals. Check whether the amounts in the receipt or invoice are GST exclusive or GST inclusive.

7. Now you can track your properties performance. Click Accounting, Reports and More Reports under Financial. There, you can see Tracking Summary.

If you want to have an easy access to Tracking Summary in future click star. This report will appear under the Accounting tab.

8. Click Tracking Summary. Choose the date range and the accounts groups you want to review. Say, you would like to know the amount of expenses incurred in relation to each property.

9. Click Update. Now you can see your Expenses Summary. Unassigned expenses are those that haven’t been assigned to any property probably by mistake or because these expenses are overhead.

10. You can also see financial statements relating to each property. Probably the most interesting report for you is Profit and Loss. For that go to Accounting, then click Reports, then Profit and Loss.

In Profit and Loss choose the Date Range and click Report Settings.

11. Under Report Settings you can choose the rental you would like to look at.

12. Your Profit and Loss for the selected date range is now displayed.

13. Please note that the reports generated are based on the transactions you have coded while reconciling. These reports are for your reference only and may be subject to year-end adjustments

The Author.
The article is written by Valiya Gafarova, Certified Xero Adviser and Accountant at GECA Chartered Accountants. If you want to know more on rental property accounting feel free to get in touch with us on 0800 758 766.

The post Xero Tips and Tricks: Keeping track of different rental properties appeared first on GECA Chartered Accountants.

Airbnb Hosting: Nine Tax Basic Rules You Need to Know.

There are a few things about New Zealand tax you should be aware of when you enter into Airbnb, BookaBach or other peer-to peer renting. The following may help you when speaking to your accountant or may provide you a general guidance if you are preparing your tax return on your own.

Here are the nine must-know tax rules for peer-to-peer hosts:

1. The money that you get from renting out your room, house or a bach is an income. You need to keep track of any income you receive in relation to your property short-term renting.
2. From your income, you can deduct expenses that relate directly to your rental income such as advertising and cleaning. To be able to deduct expenses you will need to be accurate in keeping all receipts.
3. If sometimes you or people associated with you privately use the property you will need to figure out how many days you used it and how many days your property was unused during a tax year. You will need this information when determining how much of your expenses you can deduct for income tax purposes. Depending on your circumstances you will use either mixed use proportion or standard income tax rules.
4. You are not allowed to claim depreciation on your property. However, you can still claim depreciation on assets used in your rental activity such as beds or bigger appliances. The threshold for fixed assets is over $500 for assets purchased prior to 17 March 2020.  The threshold is over $5,000 from 17 March 2020 till 16 March 2021 and then will be permanently over $1,000 from 17 March 2021 financial year.
5. If you manage your AirBnB property from your home you may be eligible to claim your home office expenses against your rental income.
6. If your AirBnB income before deductions is $60,000 or higher in the last 12 months (or you suggest that it will be $60,000 or more in the next 12 months) you will need to register for GST and file GST returns. You will be able to claim GST from your purchases. There is always an option to become GST registered voluntarily whatever your turnover is. Read more information on tax consequencesof becoming GST-registered.
7. From 1 April 2019 ring-fencing losses legislation was introduced. In practice, that means if you make an overall loss from renting your property you are not allowed to offset your loss against your other income. There are a few exceptions from this rule for example, if your property is a mixed-use asset. However, for the properties to be considered as a mixed used asset, the property needs to be also used by the property owners for their own private use instead of being rented out for short term rentals 100% of the time. You can read more on the ring-fencing losses here.
8. Also, you need to know that some properties cannot be sold tax-free. For determining your tax obligations, you need to take into consideration the date when the property title was transferred to you. From a legal point of view, this is when you became the owner of the property. If it happened before 1 October 2015, you will pay tax only if you bought the property with an initial intention to resell it. If the purchase took place from 1 October 2015 to 28 March 2018 inclusive you will be subject to tax if you sell the property within two years after the purchase date. From on or after 29 March 2018 the five-year period applies. These rules are called bright-line test.
9. In some New Zealand cities such as Auckland and Christchurch hosts are required to pay commercial rates instead of residential rates. A peer-to-peer host needs to do their own research on local rates applicable to their situation.

The Author.

The article is written by Valiya Gafarova, Certified Xero Adviser and Accountant at GECA Chartered Accountants. If you want to know more about tax consequences of having an Airbnb or other peer-to-peer rental feel free to get in touch with us on 0800 758 766.

Please note that this blog post should be considered as a general overview but not as a tax advice relevant to your situation.

The post Airbnb Hosting: Nine Tax Basic Rules You Need to Know appeared first on GECA Chartered Accountants.

After you buy your first home and accumulate some equity on the property, it may be time for you to climb up the property ladder further. Now, when you are ready to start investing it is extremely important to do it right from the beginning. And the first question that needs to be asked is what legal structure to choose and what tax consequences it will bring.

Recently, The Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 has been enacted. It introduced ring-fencing rental losses, a new rule for New Zealand residential property investors that will apply from the beginning of the 2020 financial year, i.e. from 1 April 2019.

To keep it simple here is what it means for property investors:

• If expenses related to your rental are higher than your rental income you cannot reduce your other income by the amount of your rental loss.
• You can use that loss amount against the profit from your rental – in a tax year when it gets profitable. Before this happens, ring-fenced losses can be accumulated.
• The amount of ring-fenced losses can be used to reduce or offset against taxable gain on sale of property for example if a rental is bought on or after 29 March 2018 and sold within five years after the purchase (so called the bright-line test). Un-utilised ring-fenced losses can be used in future when an investor buys another rental.
• An investor can elect to apply the rules on a property-by-property basis or on portfolio basis. This means that if an investor has got more than one rental, they can choose to track their ring-fencing losses by property or by the whole portfolio. Also, there is an option for an investor to include some of the properties to the portfolio and keep the others separate.
• Ring-fencing losses rules do not apply to your main home, business premises, commercial property, farmland, mixed used assets, employee accommodation, property bought as part of a land dealing business or bought with the intention of resale

This is the minimum that every investor may want to know about the new legislation. Now let me come back to the main question: what structure will suit better a new investor in the changed tax environment?

1. The first and simplest structure to be used is to buy a rental under a natural person’s name.If you get profit from your rental it is going to be taxed at your marginal rate. If you get a loss then the new rules will apply and you can offset the loss against your future profit.

The biggest disadvantage of this business structure is that even though it looks like a cheap option in reality it may appear that it is the most expensive one. Rental property under your personal name is not separated from your other assets.  This means that has no protection against your creditors and relationship property claims. Also, under some circumstances the process of inheriting this property may get complicated.

2. Another option is to set up a trust and transfer your residential property to this trust. It can by a costly and time-consuming option since proper trust setting and running implies that you will need to work closely with your financial adviser, lawyer and an accountant. However, it may be worth it: your property will be kept secured and protected against claims by creditors and ex-spouses / partners. Assets kept in trusts will be inherited by the people you want, and not the people that persuade the court that they were disadvantaged.

Taxwise, if the trust makes a profit out of rental property it may keep that profit in the trust or distribute it to the beneficiaries. If the profit is kept in trust it should be taxed at the flat rate of 33%. If it is distributed to the beneficiaries, it will be taxed at the beneficiaries’ marginal rates except for children under 16 (for them, the rate of 33% applies).

If the trust makes a loss it is subject to the above-described ring-fencing losses rule. The loss cannot be distributed to the beneficiaries and cannot be offset against other income that the trust may have.

3. There is an option for you to create a limited liability company and transfer your rental to the company. It will help you protect your property better than if it was held by a natural person but not as well as if it was held in a trust. However, the tax consequences will be similar. If profit is held in the company it will be taxed at the flat rate of 28%. If it is distributed to a shareholder as a shareholder salary it will be taxed at their marginal rate. Ring-fencing losses rule will still apply to the company losses.

There is one minor exception from this rule. As per s EL 11 of The Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019, if a company is not a close company, i.e. has got more than six not associated natural persons, the ring-fencing losses rule does not apply. However, the majority of New Zealand companies are close companies and will be still caught by the new rule.

Summary

Nowadays due to the implementation of ring-fencing losses legislation, holding rental properties individually or keeping it in a trust or in a close company will not differ significantly in terms of tax liabilities. Each ownership structure allows distribution of profits to individuals and tax at individuals’ marginal rate. However, the losses will be still subject to the new rules.

Therefore, when choosing a business structure, it is worth considering other pros and cons such as security, compliance costs and accessibility of profit.

The Author.

The article is written by Valiya Gafarova, Certified Xero Adviser and Accountant at GECA Chartered Accountants. If you want to know more about tax consequences of having a rental feel free to get in touch with us on 0800 758 766.

Please note that this blog post should be considered as a general overview but not as a tax advice relevant to your situation.

The post How to choose the right business structure for your residential rentals after ring-fencing losses were introduced appeared first on GECA Chartered Accountants.

Listing your home or bach on Airbnb can be a great way to bring in some extra income. If you own multiple properties or units, running your Airbnb listings can become a small business in its own right.

If you want more people to book and pay for your room or house, you need to improve your ranking on the site – that is, how high up your listing appears when people are browsing. A better ranking equals more people seeing your listing, which translates to more bookings.

Improving your ranking isn’t just about being friendly and keeping the place clean. It’s also about understanding how Airbnb’s search system works. Airbnb wants searchers to find what they’re looking for, so they prioritise listings and hosts that are informative, flexible, and responsive.

Here are five simple ways to move up the Airbnb ranks:

1: Don’t skip the description

Using a descriptive, up-to-date title and listing is essential if you want to get anywhere on Airbnb. Include as much relevant information as possible – things like nearby attractions, access to public transport, and a detailed description of your amenities. These keywords will help your listing appear in the maximum number of searches, which will help increase your ranking.

2: Take great photos

When your part of an endless list of accommodation options, great photos can help you stand out. Make sure you take high definition, well-lit photos of every part of your listing – the outside, bedrooms, kitchen, bathroom, and any other features. The better your photos, the more people will click on your listing, and the higher you will rank.

3: Respond and update

Being responsive and active is a huge part of improving your ranking. Airbnb’s algorithms rate you higher when you get back to guests quickly, and when you interact with the site frequently. Make sure you log in or check the app every day, and update your calendar as often as you can – include local events and holidays to make your calendar relevant to your guests.

4: Be flexible

Flexibility helps you be included in more searches, which helps boost your ranking. Consider going down to one night minimum stay, do your best to avoid cancelling bookings, and consider turning on instant book so people don’t need to wait for your approval.

5: Get positive reviews

Get positive reviews by providing clean, well-maintained accommodation, reply promptly and politely to enquiries, be friendly and helpful when you meet your guests, and think about adding little things like nice soaps, maps of the area, and public transport cards to make your guests’ experience positive. It’s also helpful to read your existing reviews to see whether anything comes up repeatedly – if multiple guests complain about the bathroom, for example, you could consider upgrading it.

To find out more about running your Airbnb like a business, talk to GECA. We can help make the most of your listing – wherever you rank.

Talk to the GECA team today.

At GECA we specialise in helping Air BnB operators to increase their bookings, grow their profits and protect their assets. Call us now for a confidential, no obligation discussion of your requirements.

The post 5 Ways to improve your Airbnb rating appeared first on GECA Chartered Accountants.

The post Tax implications of AirB&B Hosting – Have you got yourself covered? appeared first on GECA Chartered Accountants.