Using Xero accounting for AirBnB property management

Introduction

‍From 1 April 2024, New Zealand's short-stay accommodation sector, including platforms like Airbnb and Bachcare, is set to experience significant GST changes. This comprehensive guide delves into what these changes mean for both GST-registered and non-GST-registered property owners, offering clarity on compliance and efficient financial management in this evolving industry.

The Basics of Short-Stay Renting and Upcoming "App Tax" GST Changes:

‍The impending regulations introduce a 15% GST charge on all short-term rentals booked through online platforms, payable by guests. This adjustment spans across a variety of platforms, affecting hosts regardless of their GST registration status. Entities like Airbnb and Bachcare are now tasked with collecting GST, remitting it to Inland Revenue, and providing tax invoices for bookings.

For Non-GST Registered Owners:

‍Owners not registered for GST will notice specific alterations in financial benefits and the way expenses are reported:

• Rental Payments: The method of receiving rental income remains as before. If your rental price was $200 per night, guests will now be charged $230, incorporating the GST, which is directed to IRD, while you retain the $200 rate.
• Flat-Rate Credit: An addition to the scheme is the 8.5% flat-rate credit on the rental fee. On a $200 fee, hosts will receive a $17 credit from platforms like Airbnb, on behalf of IRD. This amount is not considered taxable income, prompting a shift in how you report expenses, which must now be GST-exclusive.
• GST Exclusive Expenses: Because owners are already credited GST, they will in future only be able to deduct GST exclusive expenses from their rental income

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For GST-Registered Owners:

‍GST-registered hosts are required to inform their rental platform of their GST number, with significant changes to note:

• GST Handling: Platforms will manage the GST on rental earnings, remitting it directly to IRD, necessitating hosts to classify this income as zero-rated supplies in their GST returns.
• Claiming Expenses: The entitlement to claim GST on relevant expenses continues, excluding the eligibility for the flat-rate credit. Precise reporting is paramount to avoid errors.

Should I register my holiday home for GST?

Registering for GST in New Zealand as a short-stay accommodation host, such as for properties listed on Airbnb or Bachcare, comes with its set of pros and cons. On the positive side, GST registration allows hosts to claim back GST on their business-related expenses, potentially reducing the overall cost of supplies and services needed to run the rental. This can lead to improved cash flow and financial efficiency in the management of the property. However, the decision to register brings certain challenges. Once registered, your property falls within the GST net, meaning any future sale of the property would be subject to GST. This could significantly impact the net proceeds from the sale, especially if the property is used as a holiday home, where personal use intersects with business use. Furthermore, GST registration necessitates rigorous bookkeeping and compliance with more complex tax reporting requirements, adding administrative burden. These factors combined make GST registration a strategic decision that requires careful consideration of both its financial implications and the administrative responsibilities it entails.

What if I use my AirBnB rental property for personal use too?

The Inland Revenue Department (IRD) of New Zealand has specific rules for "mixed-use assets," including holiday homes that are both rented out and used personally by the owner. These rules require property owners to apportion income and expenses based on the actual use of the property. For instance, if a holiday home is rented out for 90 days in a year and used personally for 30 days, income and expenses must be allocated accordingly. This means only the income and expenses related to the 90 days of rental can be claimed or declared for tax purposes. For example, if the total annual expenses for the property are $12,000, and it's rented out for 75% of the time it's used (90 out of 120 days), only 75% of the expenses ($9,000) can be deducted against the rental income. This rule ensures that tax obligations are accurately reflected based on the dual use of the property, highlighting the need for diligent tracking of both income and expenses, as well as the days of rental versus personal use.

Can I deduct mortgage interest as an expense?

The recent policy update announced by Associate Finance Minister David Seymour specifically benefits the short-stay accommodation sector, including properties listed on Airbnb and Bachcare. Starting from 1 April 2024, owners of short-stay accommodations will be eligible to deduct 80% of their mortgage interest expenses, a significant relief given the financial strains of rising mortgage rates. This eligibility will further improve from 1 April 2025, when 100% of mortgage interest expenses can be deducted. if your property is a new build, it may already qualify for deductibility. Check with the IRD for more details.

Tracking AirBnB and Bachcare properties in Xero:

‍Employing Xero offers substantial benefits in managing your short-stay rental's finances under the new GST framework:

• Managing Multiple Properties: For hosts managing multiple listings, Xero’s tracking codes enable detailed financial oversight, allowing for separate reporting per property.
• Annual Reports from Platforms: Platforms like Airbnb and Bachcare provide end-of-year financial summaries that detail cleaning fees, commissions, and GST credits, essential for accurate financial management. Visit Airbnb’s host resources and Bachcare’s owner FAQs for more information.
• GST Exclusive Tracking: Xero facilitates tracking of GST on earnings and ensures that expenses are logged excluding GST. This feature is critical for accurately determining your deductible expenses, ensuring you’re maximising your financial efficiency while remaining compliant.
• Mixed use asset: Its possible to portion your income and expenses for accounting purposes, so you are accurately deducting the correct amount of expenses

Adapting to the New Landscape:

‍The introduction of these tax changes necessitates a keen eye on financial records and a deep understanding of one’s tax duties. Utilising the functionalities provided by rental platforms and software like Xero is crucial for a seamless transition.

Professional Advice Is Key:

‍Given the complexity of the GST adjustments, seeking advice from a tax advisor is highly advisable. They can provide customised guidance, especially concerning decisions around voluntary GST registration and its potential impact on your property.

Conclusion:

‍The GST changes herald a significant transformation for the short-stay accommodation sector in New Zealand. By comprehending these modifications, leveraging platforms like Airbnb and Bachcare alongside financial tracking tools such as Xero, and consulting with tax professionals, property owners can navigate the new requirements with confidence, ensuring both compliance and optimal fiscal management.

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