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Tax is different for commercial and residential property, but some mixed situations also have their own special tax rules.

The difference between commercial and residential property

Airbnb and other short-stay accommodation

This type of accommodation is residential, even if you’re running it as a business.

Special depreciation rule - 4 or more units in a single building

If you have 4 or more units in a single building that you run as short-stay accommodation, you can claim depreciation on these units. For example, apartments within an apartment building.

Depreciation
Renting out residential property

Mixed business and residence

If you rent out part of your property to a business and part as a residence, the property is part commercial and part residential. For example, if you have a 2-storey building with a shop downstairs and a long-term rental apartment upstairs.

You need to work out how much each part is, then share out your costs accordingly. For example, 40% commercial and 60% residential.

Residential rental property deductions
Leasing out a commercial property
Property interest limitation rules

Renting out your house to a business

If you’ve converted your house and rented it out as a business premises, it’s fully commercial property. For example, a dentist or doctor’s surgery.

Boarding houses

Boarding houses have special rules for income tax and GST depending on how many rooms they have and whether those rooms are self-contained.

GST rules

Any boarding house is commercial property for GST. 

Are you operating a boarding house? - Tenancy Services website

Income tax rules

For income tax, your boarding house is commercial property if it has:

  • a minimum of 10 boarding rooms that are not self-contained
  • shared living facilities, including kitchens and living areas available to all residents
  • servicing and management taken care of by the business.

In this case, it’s called a ‘boarding establishment’.

If you do not meet these requirements, your boarding house is residential property and you’re limited in how much interest you can claim against your income.

Property interest rules

Tax Technical advice

Our Tax Technical website has more information about claiming depreciation on buildings.

IS 22/04: Claiming depreciation on buildings


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Last updated: 17 Oct 2023
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