Private property issue #103 - New Airbnb tax

This week, a new tax came in that affects property investors. But it’s not the one you’re thinking of.

It's colloquially called the "app tax". And it gives a 5.7% cut in revenue for some property investors who use Airbnb.

So what is this new tax, and how does it work?

What is the new Airbnb tax?

The government has changed the GST rules.

This is the 15% Goods and Service tax we all pay when we buy something.

Previously, if your Airbnb earned less than $60k a year, you didn’t have to be GST registered. So effectively, you didn’t pay GST.

The rules have now changed. Every Airbnb owner has to pay some GST.

As of Monday, Airbnb will now collect the GST on your behalf … you can’t avoid it.

So, for some investors it reduces the amount Airbnb pays you.

Who gets stung most by this tax?

The best way to explain the rules is by showing the impact on different investors –

#1 – This investor faces a 5.7% loss in revenue through Airbnb

Judy rents her property on Airbnb, and she isn’t GST-registered. So, the app tax applies to her.

She charges guests $230 a night through the app.

Previously she got that full $230 (minus some Airbnb fees). Now, $30 of this nightly rate is GST.

But not all of that $30 goes to the IRD. Judy will get some of it back.

That’s because she has costs that she pays GST on (rates, electricity, property management fees). If she was GST registered she could claim some of that tax back.

But, the IRD knows it's too complicated to make every Airbnb user, like Judy, get GST registered.

So, they share the GST with Judy to compensate her for the tax she could otherwise claim back:

• 6.5% goes to the IRD
• 8.5% goes back to Judy.

That might sound a bit complicated. So here’s the crux of it:

Judy used to get $230 a night from Airbnb. But now she gets $217. It’s around a 5.7% pay cut.

#2 – This investor uses Airbnb but isn't affected by the App tax

Jake is already GST-registered. He’s got a couple of properties that earn more than $60k.

The "app tax" doesn’t impact him at all. He’s already paying GST so nothing changes.

#3 – This investor has a short-term rental but doesn’t pay extra tax

Jo and Jane have a separate studio on their property.

They don’t use Airbnb, Bachcare or Bookabach. They prefer to rent it privately for a few nights as short-stay accommodation.

They aren’t GST registered either because the property earns less than $60k a year.

But the “app tax" doesn’t apply to Jo and Jane. They don't use an "app" like Airbnb.

What if I use Bachcare or Bookabach instead?

The app tax is a blanket policy for all digital platforms. It’s not just about Airbnb.

So, you still need to pay the tax if you use Bachcare, Bookabach, Canopy Camping (or any others).

Should I register for GST ... to avoid the tax?

Becoming GST-registered might sound like a great solution. But it may not be the best option for you.

You might not save any money, and this can have unintended consequences.

Your property might get caught in the GST net.

John owns a $1 million property that he rents out on Airbnb. He hears about this new tax and decides to become GST-registered.

But if he sells the property, he may need to pay $130,000 in tax (GST) when he sells his property.

That’s why you really should speak to your property accountant before you decide to register for GST.

Does Airbnb still make sense?

Sure. There are lots of investors out there who are making good money through Airbnb. We’ve had a number of them on the Property Academy Podcast.

But it's becoming a bit harder.

So when you run the numbers to see if Airbnb makes sense, make sure you factor in this 5.7%-ish pay cut.

If you want to learn more, come to my upcoming property investment webinar.

You’ll learn about the “app tax” and all the new tax rules for property investors. It’s on Tuesday, April 16th at 7pm.

Click the link below to register.

→ I want to come to the webinar to learn about the new tax rules