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When you rent out a residential property you first bought to sell or flip you’ll need to pay tax on the rental income.

The rental income can be from either renting out long-term or short-term.

Short-term renting is a taxable activity. It can mean you'll either pay GST if you're already registered, or have to register and file for it.

You’ll also need to pay income tax on any profit earned when the property’s sold. This is because one of your intentions was to sell the property.

Buying and selling residential property 

Renting out short-term and paying tax

When you’re renting out short-term you may be able to work out your taxable rental income using either the:

  • short-stay standard cost-method (the property must be your main home)
  • actual cost method. 

Short-stay standard-cost method

The short-stay standard-cost is a fixed nightly rate you can claim against your rental income. It's for short-stay accommodation in your home. 

You can use the method if you only rent out your home for 100 nights or less over the year. (Each room in your house is equal to 1 of these nights. So if you rent out your three bedroom house for 1 night we'll see that as 3 nights.)

There’s no income tax to pay if you charge guests up to the fixed nightly rate. It's exempt income.

When you charge guests more than the fixed nightly rate you'll pay tax on the difference. You'll have to file a tax return to do that. You cannot claim expenses as the fixed nightly rate covers those.

Make sure you read the rules for using the method:

Short stay standard costs for renting out your home or its rooms

Actual cost method

Sometimes you cannot, or do not want to use the short-stay standard cost method. When this happens use the actual cost method to work out your taxable rental income.

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

Renting out long-term and paying tax

A long-term rental usually means you have tenants. When you’re renting out long-term you only use the actual cost method to work out your taxable rental income.

With the actual cost method you deduct all allowable rental expenses from your gross rental income. This is for the time it's rented or available for rent.

Renting out property that you use privately

If you rent out the property and use it privately it's a mixed-use asset. A mixed-use asset residential property is one that's:

  • not your main home
  • used by you or an associated person
  • rented out by you to earn rental income some of the time.

You can use one of two ways to work out what tax there is to pay on your mixed-use asset property. Your use of the property counts. If there's been:

  • no private use by you, you can use the actual cost method
  • private use by you, check what rule to use in this table:
How the property is used How you work out your allowable expenses and taxable rental income

  • Vacant for 62 days or more.
  • The property is rented out (income-earning use) for some of the time.
  • The property is used privately some of the time.

 

  • You must use the mixed-use asset rules.
  • Not vacant for 62 days or more.
  • The property is rented out (income-earning use) for some of the time.
  • The property is used privately some of the time.
  • Use the actual cost method.

Mixed-use asset rules 

Actual cost method for working out rental income and expenses

GST when you’re renting out the property

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. 

GST and your short-term rental income