Most Airbnb and Bookabach hosts don’t know this, but there’s an IRD rule that can make your rental income completely tax-free.
It’s called the short-stay standard-cost method, and if you qualify:
- There’s no tax to pay. Its exempt income (income you do not have to pay GST or income tax on).
- You do not have to include that income in your tax return if its fully exempt under this rule.
- It works whether you’re a homeowner or a tenant.
In this article, I’ll walk you through exactly how it works, who can use it, and the common mistakes to avoid.
Here’s what I’ll cover:
- Why IRD allows this $0 tax rule
- How the method works
- Who qualifies (and who doesn’t)
- Tax-free rates (homeowners vs tenants)
- Six common mistakes to avoid
- My personal advice
Why Does IRD Allow This $0 Tax Rule?
The IRD introduced the short-stay standard-cost method to make life easier for casual hosts. In their words, this method exists to reduce compliance costs where the tax risk is low.
Translation?
If you’re just renting out a spare room or your house for the odd weekend and not making big profits, then the IRD doesn’t want you buried in tax returns and spreadsheets.
How the Short-Stay Standard-Cost Method Works
The concept is simple:
- IRD sets a fixed nightly rate guests pay to stay in your home (short-stay standard-cost).
- This fixed rate is designed to reflect the typical costs of hosting short-stay guests.
- You don’t need to work out your actual rental expenses and deduct them from your rental income.
If your total short-stay rental income is less than or equal to that standard cost for the year:
- Your income is exempt from tax.
- There is no need to include it in your tax return.
New from April 2024: If you’re not GST-registered, platforms like Airbnb and Bookabach now collect 15% GST from guests and pass 8.5% back to you as a flat-rate GST credit. You keep this amount, and it doesn’t affect your tax-exempt status. The platform handles the GST paperwork.
Who Qualifies (and Who Doesn’t)
To use this method, you must:
- Be an individual (not a company)
- Not be registered for GST for that property’s rental activity
- Host for 100 room-nights or fewer in a tax year (example below).
- Rent out your main home (not a bach, investment property, or holiday home). If you’re an investor, you can only use this if you’re occasionally renting part of your own residence.
- If your home is in a trust, you must personally pay all household costs.
- Not provide boarder-type services (like regular meals or laundry. That’s a different IRD rule).
How the “100 Nights” Rule is Counted
This is per room-night, not just nights booked.
- Rent out 1 room for 1 night = 1 night
- Rent out 2 rooms for 1 night = 2 nights
- Rent out 3 rooms for 2 nights = 6 nights
It adds up fast. So track it carefully.
Important note: The information in this article is generalized advice and there other qualification rules that may apply to you. Always get specific advice for your specific situation. Consult a property accountant if you’re unsure.
Current Tax-Free Rates (Homeowners vs. Tenants)
Each tax year, the IRD sets different rates for homeowners and tenants.
For the year ended 31 March 2025:
- Homeowner: the tax-free ceiling is $6,300. That’s $63 per night x 100 maximum nights. The homeowner rates are slightly higher in recognition that there are holding costs for a homeowner not paid by a tenant (e.g. rates and insurance).
- Tenant / renter: the tax-free ceiling is $5,700. That’s $57 per night x 100 maximum nights.
Charge above these rates or go over 100 room-nights and you lose some or all of the exemption.
What happens if you go over the limits?
Two things can push you out of the tax-free zone:
- Exceeding 100 room-nights: You must switch to the actual cost method, declare all your income, and deduct actual expenses.
- Charging above the nightly rate: You pay tax only on the excess per night.
Examples
Example 1 – Fully Tax-Free
Sarah (homeowner) rents 1 room for 90 nights at $60/night.
- Income: 90 × $60 = $5,400
- Standard cost: 90 × $63 = $5,670
- Result → No tax to pay. Airbnb income not included in her tax return, because its below the standard cost
Example 2 – Partial Tax
Tom (tenant) rents 1 room for 90 nights at $60/night.
Result: $270 above threshold → Tax on $270 only.
Income: 90 × $60 = $5,400
Standard cost: 90 × $57 = $5,130
Six Common Mistakes to Avoid
- Miscounting room-nights. The limit is 100 room-nights, not just nights. Two rooms for one night count as two nights.
- Forgetting the trust rule. If your home is owned by a trust and you don’t personally pay all the household costs, you can’t use this method.
- Mixing in boarder services. If you provide meals, laundry, or personal care, IRD treats it as boarder income under different rules.
- Going over 100 nights without switching methods. If you cross the 100-night threshold, you must use the actual-cost method.
- Ignoring GST thresholds. If your total income from taxable activities (including hosting) exceeds $60,000 in a 12-month period, you may need to register for GST.
- Charge above the fixed-rate, and not paying taxes on the excess. Any amount charged above the standard rate becomes taxable, even if you’re under the 100-night limit.
Quick tip: keep records
Even if your income is tax-free, keep booking and income records. IRD can ask for proof you stayed within the limits.
My Personal Advice
Should you always use this method if you’re eligible?
It’s not necessarily always the best option.
Why?
Because if you choose it, you can’t claim actual expenses like:
- Mortgage interest or rent
- Rates, insurance, and utilities
- Cleaning, maintenance, and supplies
If your actual costs are high compared to your rental income, the actual-cost method might give a lower a lower taxable profit.
Remember, its not about paying $0 tax.
Its about keeping as much as you can after tax (maximising what you can keep).
You only pay tax if you make a profit.
So your goal should be to maximise your income (not just to minimise your tax).
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