When you’re renting out your sleep-out, caravan or cottage you’ll earn rental income. You’ll need to pay tax on the rental income.
To see what you pay tax on you'll need to know your gross rental income and allowable rental expenses. There are set methods for working out what these are.
Using the right method to work out tax to pay
To make sure you use the right method to work out the tax to pay you'll need to know:
- how long you're renting out your property (short-term or long-term)
- if your property is an asset or part of your main home.
Attachment is how to tell if your residential property is an asset or part of your main home. For example, we'd see a:
- garage conversion attached to your main home as part of your main home
- cottage, caravan or sleep-out on your property as a separate asset, as they're not usually attached to your main home.
Working out your income when renting part of your main home
When you're renting part of your main home, follow the tax rule for this type of property:
Working out income when renting out a separate asset
With renting a separate asset, you may be able to work out what tax there is to pay using either the:
- mixed-use asset rules
- actual cost method.
Mixed-use asset rules
If you sometimes use your asset privately you apply the mixed-use asset rules. Use them if during the income year the property is:
- used privately by you or an associate
- vacant for 62 days or more.
Actual cost method
You use the actual cost method for working out rental income for your asset when either it's:
- only rented out and never used privately, or
- not vacant for 62 days or more.
You'll need to show it's available to rent when not in use.
With the actual cost method, you split your expenses using floor area guests can use by the number of rental nights. This shows what expenses you can claim against your rental income.
You'll also have to fill in a tax return to see if you have to pay any income tax to us.
Actual cost method for working out rental income and expenses
GST and renting short-term
Residential rental income from renting out long-term is exempt from GST. You do not register, file or claim GST for your rental income or expenses.
Short-term renting is not the same. Renting out short-term is a taxable activity for GST.
If you’re not already registered for GST, you need to:
- add your short-term rental income to income from your other taxable activities
- register for GST if your total turnover is over $60,000 in a 12 month period.
If you’re renting out short-term and you're registered for GST you:
- pay GST on your short-term rental income
- claim GST on your allowable rental expenses.