St Leonards Lodge owners Dean and Sue Parsons contacted the Otago Daily Times after a Quotable Value assessor visited the couple yesterday morning.
The change in classification meant their annual rates bill would increase from $5600 to $16,800, making the business nonviable, Mr Parsons said.
"We're only a six-month business, from October to March, because no-one comes to Dunedin in winter. So it works out at something like $600 a week, just in rates."
Mr Parsons believes the assessment was prompted by him putting up a website last week, advertising five rooms for rent.
"That's what put us on the radar. So, when the QV guy left, we just took three rooms off the website."
Mr and Mrs Parsons emigrated from Sydney 10 years ago to establish the business.
They offered two bedrooms for short-term rent in their house, before building a three-bedroom cottage next door.
They also operate a tourism business, 46 Degrees Below, which markets Dunedin in Europe and the United States.
"I love Dunedin. I think it's the best city in the world," Mr Parsons said.
"But ... the local authorities need to wake up. They're destroying businesses and sending people away from Dunedin.
"At the moment, the DCC are making their own rules. They want to have their cake and eat it, too."
The DCC was obliged to charge commercial rates when QV assessed a property as a predominantly-commercial operation, council rates and funding working party chairman Cr Chris Staynes said yesterday.
"QV has set rules that determine the land-use code. For B and Bs, it's triggered by five or more bedrooms or a commercial activity like operating a restaurant."
The council did not set the rules, he said.
"It doesn't have discretion. The rules are set by QV. The aim is not to be nasty. It's to say that if a commercial activity is happening on a residential property, then the fair thing to all ratepayers is to rate it commercially."
However, he conceded the changes were a "grey area" which would be fine-tuned.
"At the moment, it's a grey area because people don't know what the rules are. We have recommended to council - and it's been accepted - that we should put the guidelines on the council website so, when resource consents are filed for things like a restaurant, the owner of the B and B is aware they could be placing themselves in a different land-use code," he said.
"One of the things on the agenda for the rate and funding working party will be to look at a differential for properties in land-use code 93 that captures B and Bs - a rating that could be between residential and commercial."
That would be reconsidered by the working party later this year, although any changes would not be enacted till next year.
St Leonards Lodge is the latest bed and breakfast provider to be hit by the rating changes.
Luxury St Clair guest home Norfolk House will close its doors tomorrow after its rates stood to triple under the changes.
"What did the council achieve by putting Norfolk House out of business?" Mr Parsons asked.
"They destroyed a business and achieved no extra revenue."
