Short term rentals: the basics

Entering into the short-term rental field can be a very lucrative decision, but there are considerations to be made.

To ensure you cover all bases and don’t find yourself caught out financially, make sure you understand the following:

Tax obligations
Remaining compliant in terms of your tax obligations when you rent your property as a short-term rental is important. According to the New Zealand Government, you:
– Must include income generated through providing accommodation on an Individual tax return (IR3). This is due by July 7th each year.
– Must keep clear and accurate details of all income and expenses attributed to renting out of the property.
– Can claim expenses for the time of renting the property.

To be eligible to claim expenses on your short-term rental property, you must declare your rental income on your annual tax return. Remember that expenses can only be claimed for the period the property was rented. If only a portion of the property was rented out ie. a bedroom or granny flat, you can only claim a portion of household expenses.

Rental agreements
Understanding the difference between renting your property as a long-term rental verses a short-term rental is essential. You are not covered by the Residential Tenancies Act when you fall into the latter category, meaning standard rental agreements don’t apply.

For those involved in short-term renting of their property, creating a rental agreement can cover you, particularly if it details the following:
– Expectations regarding payments, refunds, deposits, cleaning fees etc.
– Expectations regarding smoking and pets
– Noise guides
– Number of guests permitted
– Many hosting sites include a standard terms and conditions for individuals who book properties. It is ideal to research if this is included where you advertise your property, and if you are satisfied with the guidelines set out in these terms and conditions.

It is always wise to speak to your insurance company about what you are and are not covered for in the event that something happens to your property whilst it is being rented out. It is worthwhile ensuring you are covered for:
– Cover during times where the property is vacant
– Loss of income cover
– Theft or damage cover whilst the property has tenants.
– You may be required to pay a higher premium but, this is often recommended as it prevents you being caught out financially should something occur.

Health and safety
Ensuring your property meets health and safety standards is important. Some of these health and safety standards set out by local councils as explained by the Government include:
– Appropriate fencing of pool and water environments.
– Appropriate fencing for decking over the height of 1 metre.
– Fit smoking detectors installed.
– Hazardous chemicals such as cleaning products and chlorine etc. stored correctly.

Role as landlord
It is against New Zealand law to ask long-term tenants to move out during holiday periods to allow you to move short-term renters in and make more money. If you rent your property to long-term tenants and they chose to go away, you can ask their permission to rent the property out while it is vacant. In this situation, you need to adhere to their tenancy agreement.

Posted on 2 February '18 by , under tax.