For Rent: My Airbnb!
Getting on the Airbnb popularity can be exciting and fun when you think about all the decorating, marketing, hosting, hospitality and the opportunity to provide others with an enjoyable holiday as well as all the income that you could potentially receive from lucrative holiday makers! The downside to all that fun and excitement, is accounting for the income and expenses that you will have and the tax implications. Especially, if you have a seaside property – there is market interest in experiencing coastal areas, as well as rural and regional towns.
Most Airbnb participants will choose to offer their own home to holiday makers. The property listing is considered the same as for any other rental property. The income from the Airbnb arrangement is considered rental income and included in your tax return. If the property has shared ownership, then the rental income is apportioned accordingly, as with the deductions.
Part or all of the home? If you decide to rent a room, part of the house, or live elsewhere the treatment is the same. The income received is offset with deductions that have been attributed according to the percentage used in earning that income. The property must be available to rent in order to claim any deductions. This means that if you had your property listed and rented your property out for only a few weeks over the summer then that number of weeks, as a percentage of the total weeks per year, is also used to calculate the deductions.
How much will I pay in Tax and what can I claim? The provider that has listed your property with will need to provide you with an income statement. The costs of providing the hospitality are deductible expenses. The operating expenses can all be claimed, everything from linen, equipment, cleaning, furniture and even the meal provisions, as well as repairs needed, and advertising. The overhead costs will need to be apportioned according to the percentage attributable to earning the income. This will include water, electricity, heating, body corporate fees and depreciation of furniture and equipment. It is recommended to retain some of the income received and have it set aside for the additional tax that will be required when it comes time to complete your tax return at the end of the year.
And When I Sell? If the property is your main residence, then when the property is sold capital gains tax is applied to that timeframe that the property was rented. This is often one of the tax traps that property owners overlook and find out only when the property is sold. It is wise to plan for this and keep all prior year tax records. The setup costs and property improvements that you have completed, will contribute to the cost base capital value of the property. You will need to keep all your invoices and receipts for the property improvements as substantiation. If you have arranged for a long-term rental and you have vacated the property to reside elsewhere, you may need to consider your main residence exemption for your individual tax return. It is possible to have two main residences for a period of time, however it can be a complex area and your specific circumstances should be considered.
Am I running a business? If you are renting your own home, then it is unlikely you are running a business. The tax office has a specific list of criteria used to determine if you are running a business, such as setup, frequency of occurrences, number of properties, and commercial making. In most of the cases the property is considered a rental, which applies to your individual tax return. If you are determined to be running a business of renting out properties then an ABN, a business name and GST registrations would be required.
Anything Else? Before you decide to enter an agreement with Airbnb or similar, it is recommended to investigate Landlord Insurance. You should also seek approval and gain an understanding from your Body Corporate, State laws, Council laws and of course your neighbours that may notice lots of different cars in the driveway and more activity at the property!
If this article has given you inspiration and you would like to discuss further, the ATO has published a Renters Guide that can be found on their website, or you can contact our office for further discussion and how this applies to your individual circumstances.