One topic covered considers whether letting the family bach for short term rental is or isn’t a GST taxable activity. If you are tempted to start letting your family bach, or are looking at buying a bach for rental, this is compulsory reading.
Andrea Scatchard
Other than for Budget day tax changes, or key tax revenue protection measures, Inland Revenue consults with the public in many ways, including on the issue of technical statements on how the law applies to different scenarios.
This public consultation can help the final product be more meaningful and fit for purpose for taxpayers – we often see significant changes from the initial draft and in some cases drafts have been withdrawn or paused for further analysis by Inland Revenue.
At the time of writing this article, there are seven technical documents currently out for consultation on a range of topics, all with feedback due in September.
The first two of these cover related, but subtly different, topics – when is someone carrying on a business (for income tax) or taxable activity (for GST)?
Each question is relevant to working out what income is taxable (or subject to GST) and importantly what costs (or GST) can be claimed against that income. It is often also important to understand when a business or taxable activity starts and finishes.
In most cases the answer will be pretty clear. But as with many things in the tax world, it is at the margins where clear guidance is needed.
The draft income tax business statement errs on the side of “there is no business” for small, micro operations, but as with everything to do with tax, it all depends on facts and circumstances. The document summary includes some interesting points:
You need to look at the nature of activities carried on and the intention
If you have an insufficient level of activity, it might just be a hobby
If someone has a full-time job, is retired or unemployed and devote only a modest amount of time to the activity there is a presumption it is not a business
It’s important to assess whether the activity has a real prospect of profit
The number of transactions is relevant, a low number points to no business
Not keeping accounts or records points to no business, while seeking professional advice points to there being a business
The tests for a GST taxable activity are different to the business tests, but many of the principles are similar. The draft GST statement includes some useful commentary and helpful examples.
One topic covered considers whether letting the family bach for short term rental is or isn’t a GST taxable activity. With AIMS Games this month, and summer just around the corner, if you are tempted to start letting your family bach, or are looking at buying a bach for rental, this is compulsory reading.
As always, you should seek tax advice specific to your situation, as the Inland Revenue statements can never cover all possible scenarios.
- Andrea Scatchard is a Tax Partner at Deloitte, based in the Bay of Plenty. She can be contacted on ascatchard@deloitte.co.nz
