Airbnb is the superstar of the new sharing economy. Enabling property owners or even those living in rental properties to provide a ‘locals’ living experience in tourist destinations whilst earning a reputable rental income.
Tax professionals are quickly adapting to the new airbnb tax regulations in Australia and the potential tax perks for home owners who choose to rent through this platform.
Renting your apartment or property using a sharing platform has proven to be so popular due to the incredible benefits to homeowners including;
To keep ahead of the curve savvy home owners need a solid foundation of understanding on how sharing economy platforms affects their tax and also the Airbnb tax benefits.
With that in mind, we’ve gathered 6 of the best Airbnb tax tips we could find to help provide you a solid foundation to make the most of your rental. We’ve also included a comprehensive review of tax considerations to ultimately help you to maximise your deductions in order to reap the greatest return from your rental income.
Below we will address;
These comprehensive tips include information you cannot live without if you are in possession of an active airbnb rental property. We will then answer frequently asked questions from our Airbnb hosts at the end of the article.
You have the potential to be claiming over 30 different expenses as an Airbnb host on your tax return! Airbnb expense deductions have the potential for some major savings on your Airbnb tax bill. Here's the ATO's offical page on deductions for the sharing economy.
These allowable deductions form part of the Government tax incentives for homeowners.
For the purpose of this discussion your deductible expenses will either be;
Examples of expenses relating to your airbnb rental listing that may be fully deductible for tax purposes include;
Examples of expenses relating to your entire rental property that may be partially deductible for tax purposes include;
If you are only renting part of your home, for example a single room, you can only claim expenses related to renting out that part of the house. This means you cannot claim the total amount of the expenses – you need to apportion the expenses.
As a general guide, you should apportion expenses on a floor-area basis based on the area solely occupied by the renter (user), and add that to a reasonable amount based on their access to common areas.
You can only claim expenses for when the room was rented to a client. If you use the room in any other capacity, for example for storage or as an office when you do not have guests staying, then you cannot claim deductions for expenses when the room is not occupied.
Expenses that may not be deductible include;
The answer depends on whether you rent your whole property or part of your property.
Where you rent out a whole property, expenses are only deductible where an area of the house is either actually rented out, or available for rent.
For example, where a property is available for rent for 180 days a year then only the portion of rental expenses that were incurred over that 180-day period are deductible.
Note, it is not a requirement that the property is actually rented for the (in our example) 180 day period for rental expense deductions to be claimed. The property simply needs to be available for rent. Therefore, even if no guests stayed on the property during the 180 day vacancy period, if the property is advertised on Airbnb as vacant and available for rent, you can still claim deductions for the 180 day period.
Where you rent out only part of the property (such as a bedroom with access to shared areas in the property where you live), you can only claim expenses for the period the room is actually rented.
So, if you only rented the room for two weeks in a year, you can only claim the proportion of expenses for the rented part of the property which related to that two week period. This is to stop you claiming deductions for periods where the room might be used for private or domestic purposes, even though it was notionally available for rent.
This is the best way to save on your tax bill at tax time.
Keeping an excellent record of everything relating to your Airbnb rental and making this paperwork easily available at tax time will ensure you can claim the maximum deductions related to Airbnb tax and expenses.
Save income statements, receipts with notes for what they are for and all correspondence. No need to over-organise it - just make sure you have a digital copy of everything saved somewhere secure (on a cloud server is best).
There are some super handy paid apps that can assist you (and especially your accountant) with this, plus the cost of the app per month will also be tax deductible, PLUS your accountant will love you. Here's the tax records the ATO suggests to keep.
Hubdoc & Receipt Bank are just two of the many that will link to your accountant’s software, your bank account directly and mean you can simply take a photo of the expense receipt on your phone and it’s recorded and saved for tax time.
Airbnb tax is real, even if you’re not earning a lot of money, be sure to have an idea of how much tax may be payable and keep excellent records of all income and expenses.
By implementing the above record keeping process, you will not only make it easier for this year’s tax return, however will be facilitating much easy, pain free tax returns into the future.
You’ll also ensure you are maximising those deductions and minimising your overall tax bill.
This tip is seductively simple, yet sexy.
When renting, expenses can only be deducted proportionally based on the area of the house that is being used for Airbnb purposes. Therefore increase the floor area dedicated to this purpose.
Hosts letting short term sharing economy properties in the Greater Sydney area will only be allowed to rent out their home for up to 180 nights a year and still be deemed residential. Past this they are commercial and deemed a business for tax purposes.
Currently only applicable in the Greater Sydney region, however the best example of why, when and for how long you list a rental for plays a huge part in managing your revenue and tax.
It is crucial you carefully select the periods and seasons in which you list your property for short term rental.
Here are the prime peak periods of seasonality to consider;
The quietest month on average is May.
Thinking about buying an Airbnb home? Maybe you’re already hosting on Airbnb but need to re-vamp your rental property for better returns?
Lending institutions in Australia have been slow to recognise the income generated by the sharing economy when processing loan applications, however the tide is turning.
There are now some lenders in the market who will consider short term rental income as part of the loan application, after successful results with the lending market in the US.
Not only can existing short term rental home owners benefit from this new type of lending but future home owners can also plan for this in their home loan application.
An airbnb home loan is one that recognises your short term rental income as part of the home loan lending application criteria.
It’s inherently an investment loan, meaning you are buying a property for investment purposes and this forms part of your home loan.
Thus by doing so legitimises Airbnb income against your mortgage and may increase your deductions.
Airbnb in all lenders eyes currently is generally considered holiday lettings - as short term lets qualify under holiday lettings. This means the income you earn from it is shaded by 50% or more depending on how consistent you can demonstrate that income to be.
The maximum contribution top tier banks will currently extend to is 50% of income, which then has to be consistently demonstrable over a minimum of 2 years.
If it’s wholly used for holiday lettings, there are some circumstances where the value of the property will be shaded again, therefore there is a risk the LTV can reduce further.
If you’re seriously considering this type of loan you could contact a financial broker for further guidance in navigating lending options.
Rather than a traditional equity loan against your existing home, consider structuring a loan against your Airbnb income.
The ability to repay your loan will also be calculated with approximately a 6-7% interest rate on the loan repayments. Meaning if you can’t afford to repay the loan amount with 6-7% interest it’s unlikely you will receive the loan.
A general means test is to also look at 2.25% above carded rate - government issued interest rate as a measure for your capability. For example is the carded rate was 5% than you would need to show the ability to repay at 7.25% minimum.
The most prudent path for obtaining such a loan is to talk with an experienced finance broker.
Ultimately you could be claiming some of your interest payments on your investment loan.
When moving from a long term property arrangement to a short term property arrangement great care is needed to ensure you are making the right move. It is always best to start by reading what the ATO states about renting out part or all of your home here.
According to a report commissioned by Airbnb;
"Broadly, in Sydney and Melbourne, it is not more financially beneficial to host a property on a sharing platform instead of renting to a long term tenant. In only a small number of cases, mostly in areas where hotels are too expensive, it is more profitable to list a property on Airbnb full time rather than on the rental market."
In saying that we must recognise that there is much greater income potential with short term rentals. By working with professionals to manage and optimise your short term rental you may find the financial gains beneficial.
In answering the question around continuing to claim tax deductions the answer depends on how you manage the letting of the property as a short term rental.
If you are renting the whole property as a short term rental than most deductions will carry forward, however if you plan to move back in and simply rent part of the property, many of your deductions will change.
Renting through the sharing economy will trigger the need to calculate Capital Gains on the sale of your home.
How much of the gain is taxable and how much is covered by the main residence exemption is calculated as below.
Calculating the capital gain that is not exempt requires record keeping and some clear starting points.
Check out the ATO's page on working out your capital gains for Airbnb here.
Then when preparing to calculate what your gross capital gains may be after you sell your home of a few key factors need to be known.
These include;
To assist you in calculating the proportion of your capital gain that will be exempt from CGT try using the ATO’s Property exemption tool or talk to your tax accountant who will be able to assist in providing an accurate scenario tailored to you.
PLUS don’t forget the value of all the extra tax deductions to your overall tax invoice.
It’s a trade off, healthy short term rental income for you now may mean higher gross capital gain liabilities for tax when you sell your property. However the rental income you make from Airbnb will usually outweigh the later effects of CGT, but not always.
Here’s two examples showing the affects of CGT;
Let's finish by clearing up a few Frequently Asked Questions (FAQ) that will inform our top tax tips we hear from all of our short term rental clients. Below we will answer;
You may be wondering how Airbnb income affects your income tax here in Australia.
Firstly, earning rental income from the sharing economy is a great boost for many homeowners however let’s be clear that any extra income you earn means the ATO will charge you more tax at the end of the financial year.
The ATO states “If you rent out part or all of your home, the rent money you receive is generally regarded as assessable income.”
Therefore you must declare all income from Airbnb on your income tax return. This may increase your income tax payable, however the great news is you may be entitled to tax deductions for expenses incurred in providing a short term rental. See full details in our Top Tax Tip #1.
Here’s why Airbnb income may affect your future Capital Gains Tax (CGT);
Generally when not receiving income for renting part or all of your home under the main residence tax exemption you are not subject to Capital Gains Tax (CGT) when selling your family home.
In short, yes it will. It's reported that many Airbnb hosts are ignoring this fact and may face a untimely surprise when they sell their house.
The ATO make it clear here that if you’ve used any part of your home to produce income - this includes renting it out through any sharing economy platform - you’re generally not entitled to the full CGT exemption.
Is Goods and service tax (GST) applicable on an Airbnb apartment?
No, GST is not applicable for residential Airbnb transactions. This is the case even if your turnover exceeds the threshold of $75,000.
The ATO states “Good and services tax (GST) doesn't apply to residential rents, so you're not liable for GST on the rent you charge, and can't claim GST credits for associated costs.”
However if you find yourself deemed as a commercial property or business, this will change and you may need to register for GST.
***