If you own a bach/holiday home and you also rent it out for short-term stays, then hopefully you will already be aware
of recent tax changes that may affect you. These rules came in to effect on 1 April 2013.
The new rules also apply
to boats and aircraft, but the changes only come in to effect on 1 April 2014 for these. Collectively, these types of
assets that are used both privately and to earn income are called
Why is this important to me?
The reason these changes are important to you is because your expense claims may be substantially reduced under
the new calculation rules. This could therefore increase your taxable income, and the amount
of tax you need to pay.
Under the old rules, expenses could generally be claimed so long as your bach was "available for income-earning use"
e.g. it was advertised as being available. This resulted in expense claims for a large portion
of the year, when in fact the
bach may have only earned income for 3-4 weeks during that year. The IRD didn't think this was very fair.
So from 1 April 2013, the way to calculate expenses (generally) is by dividing the number of days that the bach was
actually earning income, by the total number of days that the bach was actually used (either
for earning income or
use). This method generally eliminates expenses that relate to when the bach is vacant.
Example: if you used your bach for 30 days in a year, and it was physically rented out for 20 days in that year, the
expenses you could claim would be 40% (which is 20 days of earning income divided by 50
days of total use).
Under the old rules, so long as the bach had been "available" when you weren't using it (e.g. available for
365 – 30 = 335 days),
you could have claimed 92% of expenses; being 335/365.
So quite a dramatic change
in this scenario. The IRD
have stated that they expect an extra $50m in tax revenue from these changes.
How can I tell if my bach is affected?
A bach will fall into these new apportioning rules if, during the tax year:
a) It is used privately by you or a relative, and
b) It is used to earn income, and
c) it is unoccupied for 62 days or more
There are a few exemptions that allow you to opt to keep your bach outside the tax system, so that you don't declare
income and don't claim any expenses. One of these is when the level of income you earn is
less than $4,000 for
So how do I calculate expenses now?
Expenses fall in to three categories:
1. Apportioned (as we have covered above: and would include mortgage interest, rates, insurance)
2. Fully claimable (when they relate 100% to earning income: like advertising)
3. Not claimable (when they relate to your private use: like the cost of a boat stored at the bach and
unavailable to the people that rent the bach)
So, beware of these new tax rules for baches, and consider if you think they may affect you .
If you would like to discuss any of the items mentioned above please contact Paul Young at the Kerikeri office on
(09) 4077142 or email email@example.com