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Airbnb and trusts? Find out about tax

Income earned from rent is taxable and you can claim deductions for costs related to earning that income. Different rules apply depending on the circumstances.

Where the trust owns the bach

Where a trust owns a property being rented out as short-stay accommodation, factors which affect who is taxed and what expenses they can claim include:

• who is renting out the property: the trustees or the trust’s beneficiaries?
• if the trustees rent it out, do they keep the income or distribute it to the beneficiaries?
• who pays the expenses for the property, the trustees, or the beneficiaries?
• if a beneficiary pays the expenses for the property, do the trustees reimburse him or her?

Factors which are not specific to trusts also need to be considered:

• is it a dedicated rental property or also used privately?
• is it subject to the mixed-use asset rules or the standard tax rules?
• what kind of expenses are being claimed? Capital costs are not claimable (e.g. adding an extension, renovating the bathroom) and interest, or a proportion of the interest may be not be deductible under the interest limitation rules
• rental losses are ring-fenced or subject to expenditure quarantine rules unless the property being rented out is the main home of the person receiving the income (or the principal settlor of the trust).

Where a trust owns a property rented to short-stay guests, the trustees will usually be the ones to rent it out where it’s dedicated short-stay accommodation, or sometimes rented out and sometimes used privately (most usually by trust beneficiaries, their family, friends, and associates). Generally, these situations involve a holiday home or the family bach.

If all or part of a property held in a trust is rented out by a trust beneficiary for short-stay accommodation, the most common situation is where the property is the beneficiary’s family home.

Keep good records

Whatever your situation, it’s important to keep good records of:

• all rental income, and who receives it
• property expenses and who pays them
• details of any agreement between the beneficiaries and the trust about the property
• standard details relating to rental usage

Who needs to file a tax return?

Whoever earns rental income must file a tax return and can claim expenses related to earning the income.

Be aware there are new disclosure requirements for trusts. Trustees may be required to provide information to beneficiaries or prepare financial statements where you haven’t needed to in the past.

If the trust is a “non-active trust” and has filed a non-active trust declaration (IR633), the trustees don’t need to file a return.

A trust will be non-active if:

• it hasn’t earnt any income and doesn’t have any deductions for the year
• there were no transactions involving trust assets that produced income for any person or fringe benefits for any employee or former employee

Certain income and expenses don’t count when determining whether a trust is non-active:

• reasonable fees paid to professional trustees to administer the trust; or
• bank charges or other minimal administration costs up to $200 in the tax year; or
• bank interest earned on trust assets during the tax year, up to $200; or
• insurance, rates, and other expenditure incidental to the occupation of a dwelling owned by the trust and incurred by trust beneficiaries

Where beneficiaries live in a trust-owned property, and pay expenses such as rates, insurance, and other property expenses, if they also rent rooms to holiday guests or occasionally vacate the property and rent it on Airbnb (or similar), then they must file a tax return, declaring rental income and claiming allowable expenses. They may be eligible to use the standard costs method. If they do this, they may not need to file a tax return if they don’t earn rental income exceeding standard costs.

Our recommendation

The table at the end looks at tax outcomes in common scenarios. Contact us if you would like to talk through how the rules apply in your case.

Rental scenario	Tax outcome
The trustees rent out the property	•	all amounts from paying guests are taxable income to the trustees
	•	if the property is subject to the mixed-use asset rules, income is tax exempt if it is rent from associates such as settlors or beneficiaries or from letting the bach or sleepout at mates’ rates (less than 80% of market value)
	•	where family or friends use the property for free but pay minor amounts for power etc, those aren’t counted as income
A beneficiary rents out the property	•	all amounts from paying guests are taxable income to the beneficiary
The beneficiary pays expenses (and owns the income)	•	costs outlaid by the beneficiary and related to earning the income are deductible
	•	the beneficiary may be eligible to use the standard costs method to claim deductions
	•	where there is also some private use, the amount of the deduction is subject to apportionment
The trustees pay expenses (but the beneficiary owns the income)	•	the beneficiary can’t claim expenses – the trustees paid them
	•	the trustees can’t claim expenses – the income is going to the beneficiary
	•	however, if the beneficiary pays rent to the trustees or reimburses the expense as part of the arrangement to use the property, those amounts are counted as taxable income to the trustees and the trustees can claim the expense
The trustees pay all expenses (and own the income)	•	the trustees can claim expenses related to earning rental income
	•	where there is some private use (eg the beneficiaries or others use the bach sometimes) expenses must be apportioned across income earning and private use times.
A beneficiary pays expenses (but the trustees own the income)	•	the beneficiary can’t claim expenses – the income is going to the trustees.
	•	the trustees can’t claim expenses – the beneficiary is paying expenses
	•	if the trustees don’t reimburse the beneficiary for expenses they paid, those amounts are counted as taxable income to the trustees
	•	there may also be a settlement on the trust or a distribution from the trust, depending on the value of what the beneficiary and trust provide each other under the arrangement
A beneficiary pays expenses; the trustees own the income and the trustees reimburse the beneficiary	•	if the trustees reimburse the beneficiary, the trustees can claim the expense as a deduction
	•	where there is also some private use, the deduction is subject to apportionment.
A beneficiary who is also a trustee pays expenses	•	generally, the person would be deemed to be acting in their capacity as trustee, so expenses would be treated as incurred directly by the trustees
Trustees distribute rental income to beneficiaries	•	rental income allocated to beneficiaries is taxed at each beneficiary’s tax rate rather than at the trust rate
	•	expenses incurred by the trust for the rental are deductible to the trustees, subject to apportionment if needed