AirBNB - what you need to know.

GST trap for Air B&B

If an air B&B finds itself needing to be registered for GST, the land and buildings will need to be apportioned between private and business in accordance with the new rules brought in on 1 April 2011.

Input tax can be claimed on the share of the original cost of the property.

Should the property ever be sold to a non-registered person, expect to pay GST on the full selling value. For example, house costs $300K. 60% is used for business and this has not varied from the time you became GST registered. You have already claimed 60% of the GST content of $300,000 = $39,130 x 0.6 = $23,478.

House sells for $750K. You are now required to pay 100% of the GST content of $750,000 = $97,826.

You are permitted, under the wash up rules, to make a further input tax claim of 60% of the output tax = 60% of $97,826 = $58,696. However, this claim must be limited to the original input tax charged on the purchase price, as calculated above = $39,130.

The end result is you have paid 100% of the GST on the capital gain even though the business use was only 60%.

Visualise a situation where a client becomes liable for GST registration and a few months later decides to sell their home and a non GST registered person buys it. The figures like those above could easily apply. Output tax liability of $97,826 less maximum input tax claim of $39,130 equals gift to the government of $58,696.

The value of sales being made in any other taxable activity being undertaken by the owners of the B&B need to be included for the purposes of determining whether the GST threshold for registration has been reached.

Bright line test

Inland Revenue considers air B&B to be residential and therefore subject to the bright line test. This view is not shared by many tax consultants.

Registered for GST – body corporate not

If you own an air B&B, obtain copies of the tax invoices from body corporate for all outgoings and claim a proportional

share of the GST. The body corporate serves as an agent.

If you still have any queries, you can contact our office!