The sharing economy has provided many new opportunities for everyday Australians to generate extra income. Airbnb is one of the popular online platforms that enable users to rent out their homes for short periods to other members of the community. Many individuals are keen to participate as Airbnb hosts, and they see this as a simple way to make money from their existing home. However, they may not be entirely aware of the tax implications.
If you’re thinking of becoming an Airbnb host, understanding the tax implications with regards to reporting, claiming for deductions, and potential capital gains tax will help you avoid potential problems with the Australian Taxation Office (ATO).
Do I need to declare my Airbnb income?
The income you earn from Airbnb is assessable and must be declared in your annual tax return. The amount of tax you need to pay will depend on your total assessable income from other sources and the amount of deductions against your income you are claiming.
What deductions can I claim?
When you rent out your home, you are allowed to claim for the expenses and depreciation for the part of the home that was rented out.
You can claim for:
- Costs involved in renting out your space.
- Costs related to the common areas of your home that guests can access. These costs will need to be apportioned. You cannot claim for costs related to private areas of your home.
- Depreciation in the rented space. Common areas will need to be apportioned.
- The cost to repair and maintain the rented space, such as hiring professional cleaners.
- Food and snacks that are provided to guests.
- Costs incurred to list and advertise your space on Airbnb – ie service fees, professional photography.
- Apportioned utilities – internet, phone, water, electricity, rates, insurance, etc. Apportion of expense generally based on the floor space accessed by the guest.
You will need to keep accurate records of which areas were rented out including common areas, the income earned, and all expenses related to the rental. This will provide evidence and support for your claims if required by the ATO.
Capital gains tax for Airbnb hosts
Home owners renting out their primary residence may not have given any consideration to the potential capital gains tax they can incur. When you sell a rental property, you trigger capital gains tax (CGT). However, when you sell your primary residence, the property is exempt from capital gains tax.
If you have rented out your home for income, or even just a portion of your home, the ATO can view your home as a rental property. This means that you could trigger CGT when you sell your home in the future.
Calculating CGT can be complex because the home may not have been used as a rental from when you purchased the property and a CGT discount would apply to reflect this. Typically, the calculation takes into account the percentage of floor space and the length of time that the home was rented out.
Before renting out your home on Airbnb, it is best to seek professional advice from your accountant to ensure the benefits of short-term income outweighs the potential for capital gains tax in the long term.
Income made from Airbnb, like other sharing economy platforms, is taxable. You need to keep good records and declare your income in your annual tax return.
Avoid spending all of your Airbnb income. Get into the habit of keeping some money aside to pay your taxes. The final amount will vary, but saving around 40% of your Airbnb income is generally enough to cover your tax bill.
Be diligent with record keeping so that you will able to provide supporting evidence if you are ever audited by the ATO. Furthermore, it is always best to be honest when it comes to reporting income tax as the ATO can easily pick up discrepancies with tax returns, particularly with today’s data-matching technologies.
Renting your home on Airbnb can be a great way to bring in extra income, but it can also be confusing when it comes to tax reporting and claiming for deductions. If you need assistance, contact Moiler to discuss how our team can help you maximise your returns from Airbnb.
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This document has been prepared by Moiler Partners, an Authorised Representative of Count Financial Limited ABN 19 001 974 625; AFSL 227232 (“Count”) a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124 and is for general information only. The presentation has been prepared without taking into account your personal objectives, financial situation or needs. You should assess whether the information is appropriate for your needs and consider talking to a Count Authorised Representative before making any investment decision. The relevant PDS should be considered before making a decision about any financial product. The information is provided as an information service only and does not constitute financial product advice and should not be relied upon as financial product advice. 8 July 2019