A Bed and Breakfast establishment is regarded as a commercial dwelling in the eyes of the IRD; this means it falls outside the GST exemptions for residential rental properties. Therefore if it generates income in excess of $60,000 in a 12 month period the business would be required to register for GST and charge GST on its services. GST is charged at 15% for the 1st 4 weeks of accommodation and at 9% thereafter (60% of the full rate). Meals, drinks, laundry and other services provided are taxed at the full rate.
Potential Pitfall - "Watch Out"
A potential pitfall regarding GST for Bed & Breakfasts is that if the B & B breaches the $60,000 income limit and is required to register for GST. When the home is later sold that sale may also be subject to GST. By using a company or trading trust you may be able to get around this. The property ownership must be different from the person making the taxable supply thus insulating the property and the business.
When calculating the income and expenditure relating to the running of a Bed & Breakfast, it is important to correctly apportion expenses between the business and personal use. A variety of factors are used in this calculation: The number of people living in the property, area used exclusively for renting, shared area (guests & hosts), total area of the property, and the number of days the property was rented out. Expenses to be apportioned include rates, insurance, power, phone/internet, Sky TV, repairs & maintenance, and the interest portion of any mortgage payments.
Other expenses which can be claimed against Bed & Breakfast income include marketing and advertising, food, drinks and other consumables provided for guests.