This week, a new tax rule has come into effect that’s impacting property investors, particularly those using platforms like Airbnb. It’s being called the “app tax,” and it’s essentially a 5.7% revenue adjustment for many Airbnb hosts.
As the owner of Marceve, a short-term rental management company right here in Hamilton, I’ve been fielding a lot of questions about this, so I wanted to break it down for you.
What is this New Airbnb Tax?
The government has updated the GST (Goods and Services Tax) rules. Previously, if your Airbnb property earned less than $60,000 annually, you weren’t required to be GST registered, effectively meaning you didn’t pay GST on those earnings.
Now, that’s changed. Every Airbnb host is subject to some form of GST payment. As of this past Monday, Airbnb will automatically collect GST on your behalf.
Who is Most Affected?
Let’s look at a few scenarios to understand how this impacts different investors:
- Scenario 1: The Non-GST Registered Host:
- Consider a Hamilton property owner who rents their studio apartment on Airbnb for $230 a night and isn’t GST registered.
- Previously, they received the full $230 (minus Airbnb fees). Now, $30 of that nightly rate is GST.
- While not all of that $30 goes directly to the IRD (Inland Revenue Department), due to a GST sharing calculation, they will see a reduction in their take home pay.
- Essentially this investor will see around a 5.7% reduction in their nightly income.
- Scenario 2: The GST Registered Host:
- For experienced investors with multiple properties earning over $60,000 annually, who are already GST registered, this change has no direct impact. They’re already accounting for GST.
- Scenario 3: Private Short-Term Rentals:
- If you’re renting out a property for short stays without using platforms like Airbnb, Bachcare, or Bookabach, this “app tax” doesn’t apply.
What About Other Platforms?
It’s important to note that this isn’t exclusive to Airbnb. This tax applies to all digital platforms facilitating short-term rentals, including Bachcare, Bookabach, and others.
Should You Register for GST?
While registering for GST might seem like a way to mitigate the impact, it’s not a simple decision. It can have broader implications, especially if you plan to sell the property.
- For example, if you own a valuable property and register for GST, you might face a significant GST liability when you sell.
- I strongly recommend consulting with a property accountant before making this decision.
Does Airbnb Still Make Sense?
Absolutely. Short-term rentals can still be a profitable venture. However, it’s crucial to factor in this 5.7% revenue adjustment when calculating your potential returns.
As a short term rental management company based in Hamilton, we are seeing the impact first hand, and are ready to help our clients navigate these changes.
At Marceve, we are here to help you navigate these changes, and ensure your short term rental property is still performing at it’s best.