Thousands of first-time landlords in Christchurch risk being snared by the tax department for failing to declare extra income from rentals.
More than 40,000 Cantabrians have been cashing in on the pressured rental market as rebuild workers flood into the city and families shift out for earthquake repairs.
With the number of people renting out spare rooms, sleepouts and furnished homes on a short-term basis on the rise, those unaware of their tax requirements could be hit by a significant bill if they fail to declare their rent as income.
Tax-dodgers will face financial penalties for filing late tax returns or failing to declare income.
New Zealand Property Investors' Federation executive officer Andrew King said many Christchurch rental owners were first-time landlords, and some may not be aware they have to pay tax.
Inland Revenue Investigations and Advice group manager Patrick Goggin said there were no exact figures on how many new landlords were on the Canterbury market, but there would be many.
"With 5000 to 10,000 people that are displaced and requiring short-term rentals . . . we're pretty confident that there's an increase in the number of first-time landlords."
Inland Revenue "have an intelligence office monitoring what's happening" and action would be taken if landlords failed to comply, Goggin said. Inland Revenue was taking a pro-active approach to make landlords aware of their tax obligations before they got hit by big bills, he said.
"People who are thinking of renting out accommodation should find out what tax they'll need to pay so they can include it in their plans. "If landlords have been renting out property for some time and have not saved their tax payments, they may find themselves under some pressure.
People on salaries may not have completed a tax return before and may not even be aware they need to file a return for rental income.
According to Census data, more than 44,000 households were already renting their homes in Christchurch in 2013, and housing demand in the city is expected to reach its peak towards the end of this year.
Rental income from residential properties, rooms in a home, sleepouts, caravans and holiday homes is all taxable at a rate of between 10 and 45 per cent, depending on income levels.
Those renting out rooms to boarders must reach a certain threshold for rent before they need to pay income tax. A single boarder must be paying $250 or more in rent for it to be taxable, and multiple boarders more than $205 in rent each.
Tax returns are due by July 7.
- The Press