By Frank Newman on 31st January 2018
A recent news report from Stuff had some interesting facts and figures about bachs and coastal property. In the Far North, Homes.co.nz estimates the median value of for all properties in the region to be about $370,000 . But within 100 metres of the sea, that jumps to $542,000, or just over 46% more. On the Kapiti Coast, Tauranga and Mt Maunganui the waterfront premium is almost 50 per cent. In Queenstown it is 32%, and 25% in the Tasman District.
It seems the price increase of seaside property is also rapidly outpacing other property. In the Far North coastal property is up 47% since 2006, nearly three times the 16% increase in prices in the area generally. Likewise on the Kapiti Coast. The gain since 2006 is no surprise – any property with a feature that sets it apart from the average run-of-the-mill home is going to attract buyers and a premium price when buying interest is strong, as it has been in the last few years.
Many of those with a bach or holiday home are offsetting the maintenance and other costs, by renting it out on a casual basis via online platforms like Airbnb, Bookabach, and Bachcare, when they are not using it themselves. Here are some things to consider when doing so.
According the Bachcare most New Zealanders prefer to rent modern and luxury holiday homes when going on holiday, rather than staying in a classic Kiwi bach. Wi-fi seems to be a must have, they prefer linen to be provided, and most do not want the hassle of cleaning and rubbish removal. Wi-fi was especially important for the under 34 age group so if you don’t want young people staying in your holiday home – just say “wi-fi not available” in your advert! It seems they just can’t do without their social media and live-streaming of entertainment, but internet access is also important to the 35 to 54 age group; just under 50% said they needed to do some form of work while on holiday. This group rates “value for money” at the top of their needs list. It seems most holiday home renters want the comforts of home.
According to the survey a big put-off for holiday makers is having to pay taxes or levies. Nine out of 10 said they would change their holiday plans to avoid the taxes. Here’s the lesson for local authorities – if you want to scare away visitors to your region – just make your presence felt through rules and regulations.
Meanwhile, those who do rent their holiday home are attracting greater attention from regulators. The Rotorua Lakes Council for example has a policy of charging commercial rates to homeowners who rent their home to paying guests in excess of 100 days a year. They say it’s to protect moteliers and is not a revenue gathering exercise – ‘yeah right’!
The government too has its claws into holiday home owners. Under the ‘bright line’ rule, holiday home owners are deemed (in Labour’s campaign terminology) to be “property speculators” and will be subject to income tax on any gains made if the property is sold within five years of purchase.
Then there may be income tax payable on the earnings derived from renting out the home, under the Mixed Use Assets rules. According to the IRD, a Mixed Use Asset is an assets that’s “used for both private use and income-earning use, and it’s also unused for 62 days or more.”
The rules apply to any to property (regardless of cost price or current value), and boat or aircraft which had a cost or market value of $50,000 or more when you bought it.
Here’s an example from the IRD website. “Angela owns a bach in Taupo she bought in 1998 for $45,000. During the current year, the bach was:
- used privately for 49 days
- rented to the public for 31 days, and
- not used for 285 days.
The bach is a mixed-use asset.”
There are of course some ifs and buts, including the income being “exempt” if you earn less than $4,000 a tax year from the mixed-use asset. The average AirBNB hosts earns about $3,000 a year so many will qualify for the exemption.
Where the income is above the exemption level, it must be declared – less claimable expenses. Expenses that are not directly related to the stays (eg rates) must be apportioned between income earning days and private days. In the IRD example there are 31 income days and 49 private days, 80 in total, which means that only 38.75% of the shared expenses can be claimed. Direct costs, such as advertising, can be claimed in full.
This is a very quick run down on what are complex tax rules regarding Mixed Use Assets. Holiday home renters are advised to seek advice based on their own circumstances.