The difference between commercial and residential property

It’s important to know if your property is commercial or residential, since this affects the tax you pay and the expenses you can claim.

Commercial property

Generally, your property is commercial if it’s mainly used for business or industrial purposes, like a factory, shop or office. 

With commercial property, you usually:

• charge GST when you rent it out
• can claim depreciation for your building
• are not affected by the bright-line property rules.

Commercial property

Residential property

Generally, your property is residential if its main purpose is to give people a home, like a house, apartment or flat.

With residential property, you usually:

• cannot charge or claim GST when you rent it out long-term
• cannot claim (deduct) depreciation for your building
• cannot claim the cost of interest against your income - except in certain circumstances
• must follow the bright-line property rules if you sell it within certain timeframes.

However, there are special rules for when you use a residential property for short-stay accommodation (like Airbnb).

The bright-line property rule
Renting out residential property

Commercial accommodation

Some properties provide beds or housing but are still considered commercial. For example:

• hotels, motels and boarding houses – if they meet certain requirements
• hospitals, nursing homes and hospices
• rest homes and retirement villages (except those with independent living arrangements)
• camping grounds
• some serviced apartments.

Serviced apartments

Serviced apartments are commercial if: 

• they’re managed by someone besides the owner or person living there
• the person living there cannot enjoy reasonable peace, comfort and privacy, and allow others to enjoy the same.

Otherwise, they are residential.

GST and commercial accommodation

Tax Technical advice

Our Tax Technical website has more information on the difference between residential and non-residential buildings, and when you can claim depreciation on them.

IS 22/04: Claiming depreciation on buildings