Tax is different for commercial and residential property, but some mixed situations also have their own special tax rules.
The difference between commercial and residential property
Airbnb and other short-stay accommodation
This type of accommodation is residential, even if you’re running it as a business.
Special depreciation rule - 4 or more units in a single building
If you have 4 or more units in a single building that you run as short-stay accommodation, you can claim depreciation on these units. For example, apartments within an apartment building.
Depreciation
Renting out residential property
Mixed business and residence
If you rent out part of your property to a business and part as a residence, the property is part commercial and part residential. For example, if you have a 2-storey building with a shop downstairs and a long-term rental apartment upstairs.
You need to work out how much each part is, then share out your costs accordingly. For example, 40% commercial and 60% residential.
Residential rental property deductions
Leasing out a commercial property
Property interest limitation rules
Renting out your house to a business
If you’ve converted your house and rented it out as a business premises, it’s fully commercial property. For example, a dentist or doctor’s surgery.
Boarding houses
Boarding houses have special rules for income tax and GST depending on how many rooms they have and whether those rooms are self-contained.
GST rules
Any boarding house is commercial property for GST.
Are you operating a boarding house? - Tenancy Services website
Income tax rules
For income tax, your boarding house is commercial property if it has:
- a minimum of 10 boarding rooms that are not self-contained
- shared living facilities, including kitchens and living areas available to all residents
- servicing and management taken care of by the business.
In this case, it’s called a ‘boarding establishment’.
If you do not meet these requirements, your boarding house is residential property and you’re limited in how much interest you can claim against your income.
Tax Technical advice
Our Tax Technical website has more information about claiming depreciation on buildings.