Online platforms like Airbnb and Booking.com have made this an attractive and easy way for property owners to generate additional income by offering online marketing and booking services which are available worldwide. However, there are implications that should be considered prior to diving into this market.

Legal and regulatory compliance for short-term rentals

The Residential Tenancies Act does not apply to holiday rentals, so you need an agreement to cover the rules and expectations for your property. Some hosting sites have a standard agreement that is included when a booking is made. However, you should check that the terms and conditions suit your circumstances and cover everything you need.

Some councils in New Zealand require you to register properties listed as short-term rentals. Some may need resource consent or have zoning restrictions in place. Health and Safety rules require you to provide safety information for your guests and disclose any hazardous conditions at your property, along with ensuring your house is equipped with working smoke detectors and free from obstacles in case of an emergency. It is important to comply with any standards and regulations to avoid legal issues or fines for non-compliance.

Insurance coverage

A standard house insurance policy will not cover all the risks associated with renting out your property. There is specialised short-term rental insurance that will cover situations such as theft or damage caused by your guests. Booking platforms may offer liability insurance for stays booked via their website, however, if you are taking direct bookings, you will need to implement liability protection via other means.

Property management

Owners often underestimate the time involved with managing bookings, communicating with guests, cleaning between each stay and promptly sorting maintenance issues. A property management company can take care of this for you, ensuring that your investment is protected and hassle-free, especially during the busy season.

Setting rental rates

Research similar listings in your area to determine a nightly rate for your property. Pricing that is set too high may deter potential guests, whereas too low could impact profitability and attract the wrong calibre of guests. Consider different rates depending on seasons and when local events are held to maximise occupancy and income.

Tax implications

There are tax implications for short-term rentals. Not only will income tax apply to the profit you make but short-term rentals may be captured under New Zealand’s GST rules. If the amount of income you receive from bookings will be $60,000 or more in a 12-month period, then you must register for GST. Once registered, the property will be in the GST net, which means you can claim GST on the purchase price of the property. Conversely, there will be a GST liability when the property is sold or if you change the use of the property from a short-term rental.  

Since 1 April 2024, booking providers have been required to charge GST on any supply of short-term accommodation booked on their platform, whether the owner of the property is GST-registered or not.  Refer to our Tax Talk article here. While this article has only focused on investment properties used as short-term rentals, there are tax implications and other considerations if your property is also used for private purposes, or you rent out part of your own property for short-term stays.

We suggest consulting with your accountant or tax specialist to ensure you understand the potential tax implications related to your investment property before you start renting out.

Conclusion

Renting out your property short-term accommodation can generate revenue, but it requires careful planning, adherence to regulations, and proactive management. Considering these key factors will help you navigate the short-term rental market with confidence and maximise the potential of your investment property while ensuring a positive experience for both you and your guests.