5 October 2017

If you rent out your holiday home sometimes, you may have to pay tax on that income.

The IRD says you have a “mixed-use” holiday home if, during the tax year, you use it for:

• Private use, and
• Income-earning use, and
• It’s unoccupied for 62 days or more.

It is still private use if you receive rent from family members, or from non-family members who pay less than 80 percent of market rates.

The property becomes “income-earning” if you get rent from non-family members at 80 percent or more of market rates.

You can keep the property outside the tax system if it’s privately owned, and your income-earning revenue is less than $4,000 a year. But then you can’t claim any of your related expenses. You can also remain outside the tax system if you make a loss, and your gross income from income-earning use is less than two percent of the property’s rateable value.

If an expense relates to income-earning use and private use, you need to apportion it using this formula:

Expenses × income-earning days
income-earning days + private use days

If you make a loss from your mixed-use holiday home, and your gross income from income-earning use is less than two percent of the rateable value, you can’t claim the loss in the current year. You must carry it forward to offset against income from your holiday home in a future tax year.

If you have a home holiday that you sometimes rent out, please contact us to discuss if you need to be paying tax on the rental income you receive.