Playing ball with the IRD during RWC

IRD will proactively contact people who have listed their houses for rent during the Rugby World Cup reminding them of their income tax obligation to return all income in their tax returns.

Polson Higgs tax specialist Michael Turner said many people may have overlooked the fact that all rental income is taxable and expenses incurred in deriving that rental income is tax deductable.

He said those renting out a property need to take care to both accurately record the rental income and ensure it is reflected in tax returns as well as keeping notes of all costs associated with the rental.

"While some costs will be relatively easy to identify, such as power, phone and cleaning during the period of the rental other costs will not," Turner said.

"The general philosophy adopted would be to apportion general costs relating to the house such as interests, repairs, rates etc, over the number of days the house is available to generate rental income versus the number of days the house is available for private use. While such division may produce a low amount of deductable cost, this is the approach that the IRD will expect to see."

He said issues may arise where early expenditure is needed, such as bringing the property up to standard for rental. In this instance, those costs may relate solely to the rental and the taxpayer must decide whether they are capital or deductable.

Costs to make any repairs to the property after this period could be claimed against rental income. However, people renting out their homes should incur these costs as close as possible to the end of the rental period so that a clear link can be shown. This could include costs such as having to recarpet the house if, for example, it was damaged during the period but was previously acceptable.

"We've already heard about people being offered significant rental for their properties during the Rugby World Cup and some have opted to find alternative accommodation while renting their property. While at first glance, they may think that the cost of the alternative accommodation is tax deductable, in reality these costs are likely to be private, being the cost of private accommodation, and not incurred to earn rental income."