When renting out a holiday home you must pay tax on your rental income.
To work out what tax you'll pay, take away your allowable rental expenses from your gross rental income. The method you use to see what these are depends on:
- any private use of the holiday home by you
- the number of days your holiday home was vacant.
Holiday homes used privately and vacant for 62 days or more
You must use the mixed-use asset rules if your holiday home both:
- earned you rental income and was also used by you or an associated person (this is the mixed-use),
- was vacant for 62 days or more (being available for use does not count).
Holiday homes not used privately or not vacant for more than 62 days
You use the actual cost method to work out what tax there is to pay on rental income from your holiday home if either it:
- earned you rental income and was not used by you or an associated person, or
- was not vacant for 62 days or more.
How you use the actual cost method
How you use the actual cost method depends on your use of the holiday home. If you rented it out and:
- you did not use it privately, deduct all rental expenses from the rental income. You can do this for the time you rented it out and when it was available to rent.
- you or an associated person used it privately, you need to work out what the expenses are from the days it was rented out and available to rent. To claim expenses for the time it was available to rent, you must be able to provide evidence that you did not use the holiday home privately during this time. You can only deduct these expenses to see what you'll pay tax on, not those for private use. The actual cost method shows you how to do this.
You cannot use the actual cost method if your holiday home is vacant for 62 days or more. You must use the mixed-use asset rules.
Actual costs method for working out rental income and expenses
GST when you’re renting out your holiday home
Residential rental income from renting out long-term is exempt from GST. You do not register, file or claim GST for your rental income and expenses.
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.
