Interest Deductibility Limitations – Bed & Breakfast’s / Airbnb

Draft IR statement — interest limitation rules and short-stay accommodation, 24 April 2023

Inland Revenue has published a draft interpretation statement PUB00441 and accompanying fact sheet entitled “The interest limitation rules and short-stay accommodation”. When final, the statement will supersede previous IR statements on short-term accommodation (and QB 19/05 to QB 19/09 in particular).

The draft statement explains how the rules apply to natural persons and trustees only; how the rules apply to companies will be addressed in a later IR statement.

In the draft statement, “short-stay accommodation” is accommodation provided to a guest for up to 4 consecutive weeks. The following scenarios of short-stay accommodation are covered by the draft item:

• short-stay accommodation provided in a person’s holiday home.
• short-stay accommodation provided in a person’s main home (eg a separate room).
• short-stay accommodation provided in a separate dwelling on the same land as the person’s main home (eg sleepout or cottage on same title).
• short-stay accommodation provided on a separate property that is only used to provide short-stay accommodation (eg an apartment used exclusively to provide short-stays).
• short-stay accommodation on a farm or a lifestyle block that does not qualify as a farm.

The item notes that the interest limitation rules override all other deduction rules. However, even if interest is denied under the interest limitation rules, interest may be deductible once the land is sold if the sale is taxable. For this reason, taxpayers should keep track of how much interest is paid.

The deadline for feedback on the item is 16 May 2023.

Source: PUB00441, “The interest limitation rules and short-stay accommodation”, Inland Revenue Tax Technical website, released 4 April 2023.

If you have any questions, please feel free to reach out to anyone from the team.