The tax rules you need to know before listing your property on Airbnb
Can you claim Airbnb expenses, and what about GST? Tax expert Mark Chapman gives us the lowdown on what to look at when you become an Airbnb host.
Airbnb is a success story of the "sharing" economy, with a platform that matches private accommodation to potential holiday-makers and renters. But if you own a property, getting to grips with the financial obligations is one of the major challenges posed by this approach to renting it out.
Sadly, one common scenario is for somebody to rush into an Airbnb arrangement with a view to quickly earn extra income, but without any consideration of the potential tax consequences. If you do this, the result could be a shock down the line when you realise the ATO has taken an interest in what you have done. So, to help you avoid any tax-related traumas, here are five key tips for all current or potential Airbnb hosts.
Is Airbnb income taxable?
Yes – any income derived from rent will typically be assessable income and must be disclosed in your tax return.
It's also important to remember that the ATO may already have details about your Airbnb activity through its data collection processes, so make sure you keep accurate records and report everything.
What expenses can I claim as tax deductions?
As an Airbnb host, you can claim tax deductions for expenses that directly relate to your rental income. Depending on the set-up, this could include the following:
- Depreciation of furniture including beds, lounges, tables, desks and drawers
- Commercial cleaning costs for the rented area
- Repairs and maintenance
- Breakfast foods, tea, coffee or other provisions made available to Airbnb guests
- Professional photography costs for your Airbnb listing
- Airbnb service fees and commissions
If you're renting out the entire property, all of the costs involved in running it will typically be tax deductible.
If you're renting out part of the property you're living in, some degree of apportionment is needed. This means that you can only claim a portion of the expenses.
This is typically worked out based on the floor area that's used for your Airbnb rental compared to the total floor area of your property. For example, if you were renting out a bedroom and offering a guest access to the kitchen and living area, the apportionment would factor in both the floor area of the guest's room as well as a reasonable amount based on their access to the common areas.
The following three questions can help you get an idea of what types of claims you can make:
- Is the expense directly associated with the rented area? If so, it could be deducted in full. For example, you may be able to deduct the cost of a bed or other furniture used in a bedroom that is made up specifically for Airbnb guests.
- Does the expense relate to a shared area? As mentioned before, you will need to apportion these expenses. For example, if you and your Airbnb guests have equal access to the lounge and kitchen, you could be able to deduct 50% of related expenses. This could include furniture and appliances as well as Internet, phone and cable TV costs.
- Is the expense in a private area of the property? Any costs that relate to areas that you keep separate from Airbnb guests cannot be deducted.
These questions are important to consider because there is potential to claim a portion of many different property expenses, such as the following:
- Mortgage interest or rent
- Council rates
One final detail to note in relation to expenses where you rent out part of the property you live in is that they are only deductible where an area of the property is actually rented out. That differs slightly to the situation where you are renting out the whole property, where you can claim deductions for the period the property is genuinely available for rent (rather than simply the time it's actually rented).
Do I need to register for and pay GST?
Almost certainly not. The ATO considers Airbnb rentals as residential, which means that GST (Goods and Services Tax) does not apply – even if you earn more than the GST threshold ($75,000) from the listing.
Don't forget the potential Capital Gains Tax (CGT)
If you own an investment property, you'll pay CGT when you sell it based on the profit you make through the sale. This profit is, in very simple terms, the difference between the amount you sold it for and the amount you paid to buy it.
With property prices having risen rapidly in recent years, it's easy to make substantial profits on sale and equally easy to forget that the taxman will want a slice of those profits.
When you're selling your own home, CGT does not typically apply – unless part of the property has been used for income-earning activities. This includes renting it out through Airbnb.
What can make this even more complicated is the fact that only part of the gain will be taxable, so CGT calculations could be tricky to work out.
This is an area that catches out many Airbnb hosts who are completely unaware of the CGT implications of renting out part of their home. Given the potentially long time-lag between starting to rent out the property and ultimately selling it, CGT can be a costly trap for those who haven't factored it into their cost/benefit analysis when they first decided to make part of the property available for rent.
Tax tips for Airbnb hosts
- Get advice from your accountant before becoming an Airbnb host. Make sure you are fully across all the potential tax impacts of renting your property before you list it.
- Get a market valuation of the property at the date you start renting it out. This can be essential for CGT purposes, particularly where the house you are renting out is also the one you live in.
- Disclose all your Airbnb income in your tax return and make sure you claim all the deductions you are entitled to.
- Consider getting a quantity surveyors report to maximise your depreciation deductions.
- Keep records of all your income and expenses. The ATO may ask to see them, particularly if they query an expense.
Mark Chapman is a regular commentator on tax matters for a variety of Australian broadcast and print media outlets. In addition to his columns in Money Magazine and My Business magazine, he has written for a variety of national publications such as The Australian Financial Review, The Daily Telegraph, The Age and Business Spectator. Previously, Mark was a tax adviser for over 20 years, specialising in individual and small business tax, in both the UK and Australia. As well as operating his own private practice, Mark spent seven years as a senior director with the ATO. Mark is a Chartered Accountant, CPA and Chartered Tax Adviser and holds a Masters of Tax Law from the University of New South Wales.
Disclaimer: The views and opinions expressed in this article (which may be subject to change without notice) are solely those of the author and do not necessarily reflect those of Finder and its employees. The information contained in this article is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice or recommendation of any sort. Neither the author nor Finder has taken into account your personal circumstances. You should seek professional advice before making any further decisions based on this information.