When you get money from renting out a room or rooms in your home you’ll earn rental income.
You may need to pay tax on your rental income.
How you’re renting it out, who you’re renting to, and for how long, changes what income tax you pay.
Renting out to flatmates
Flatmates share a house, expenses and chores. Usually one flatmate is the tenancy holder.
If you, or someone in your flat, collects rent from the others to pass on to your landlord, the income is not taxable. There’s no need to do anything.
If you own a home and get flatmates in, you may have tax to pay on the profit from renting to them.
Use the actual cost method to see what tax you may have to pay:
Renting out to private boarders or home-stay students
Private boarders and home-stay students are different to flatmates. When boarders rent rooms in your house, part of the rent they pay is for services. These are services like meals or laundry.
To see if there’s tax to pay use these tax rules for renting to private boarders:
Short-term renting out of rooms in your home
Renting short-term is when you rent out a room or rooms in your home for a few nights or up to 4 consecutive weeks at a time. This excludes renting out to flatmates or boarders. It's usually the type of renting you'll offer through services like Airbnb or Bookabach.
When you’re renting out rooms in your home short-term, you may be able to work out your rental income using either the:
- short-stay standard-cost method
- 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 before using the method:
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 the floor area guests use by the number of rental nights. This shows what expenses you can claim against your rental income.
With this method you'll also have to fill in a tax return to pay income tax to us.
GST and renting out short-term
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.