Renting Out Your House on Airbnb… What About Tax?
Written by: Canny Accounting
Over the last ten years, Airbnb has revolutionised the short-term accommodation industry in Australia, as well as worldwide. From humble beginnings where a single room in a house was made available for short-term stays, listings of entire homes quickly became the norm.
While there are dedicated properties purchased as an investment for permanent availability, homeowners are increasingly offering their own properties to coincide with absences on holidays and business trips, ensuring some additional income while they are away.
Of course, wherever there is the potential for additional income, the spectre of taxes also looms large. As with any income, revenue from all rental properties must be declared annually on a person’s income tax return if the amount is charged at commercial or market rates, which will apply for commercial arrangements. If there is an agreement to rent to a friend or family member at a very low rate then this may not attract tax obligations, but conversely, it will also mean that no deductions can be claimed.
With anything other than a very basic income tax return, there is a range of deductions and ways to minimise tax payable on rental income, and this is where the services of your tax agent, financial adviser, or accountant can ensure that all possible avenues are considered.
As most, if not all, rental arrangements will be commercially viable, the profit made by renting your property over a year will be taxed at the marginal rate for individual property owners. If jointly owned, each owner must jointly declare 50% of the profit and claim 50% of the allowable expenses for the year. The rental income is to be declared in the standard tax return for individuals.
A Word of Warning for Keeping Your Financial Records
Like many areas of tax legislation, things are often more complex than they may look at first. For those owners of an investment property for the sole purpose of rental income, whether long-term or short-term, there may be issues such as future capital gains tax considerations, and if the property is owned by a business or a trust, this can also mean different rules, requirements, and tax rates. In this situation, it is recommended that an expert is always consulted for taxation purposes.
Getting To The Point – What Are the Tax Deductions + Claimable Expenses?
In the way that working from home can sometimes cause confusion as to exactly what is and is not deductible, this can also occur with Airbnb rentals – particularly if the property is not dedicated solely to commercial rental but is someone’s own regular place of residence (“shared”). Once again, this is where a tax agent or accountant can be very helpful.
Keeping good records of expenses and receipts, and confirmation of payment even if you are not sure if something is claimable – or even partly claimable means that you can hand everything over to an expert to ensure that you legally minimise the tax payable and make the most of your additional income.
In broad categories, valid expenses that are 100% tax deductible are those that are only for the use of guests, and include (but may not be limited to):
- Consumables, including food, beverages, laundry and dishwashing detergent, and bathroom items (soap, toilet paper, shampoo etc.)
- Linen, furniture, appliances, and equipment under the value of $300
- Depreciation on furniture, appliances, and equipment over the value of $300
- Laundry and cleaning costs
- Cost of locks and security fittings
For situations where the property is not solely for guests’ use, only the portion of the above expenses directly used for guests can be claimed.
Expenses that are 100% tax deductible for both types of property include:
- Airbnb fees
- All marketing, advertising, and promotional costs (e.g., professional photographs of the property or part of the property)
- Agency listing fees
Where the entire property is deductible for rental and is available for the entire year, mortgages, rates, electricity, and insurance payments will also be 100% tax deductible, but if the property is not available for any amount of time during the year this means that deductions will not apply to this time. For shared properties, these expenses need to be appointed accordingly. This is calculated on the amount of floor space used to accommodate guests and the amount of time they occupy the space.
Repairs + Maintenance for Investment Properties
These are also tax deductible but do not apply to the complete replacement of an item – as an asset, this is subject to depreciation.
As an example, an air-conditioning unit in generally good condition may require some maintenance or occasional repair, which is tax deductible (either 100% or apportioned), however replacing the entire unit means purchasing an asset, so only depreciation can be claimed.
Depreciation of assets is another complex issue that has certain timeframes around the purchase of assets and is often something that is simpler to leave to the professionals to calculate, like your accountant.
Preparation is Key for Your Financial Plan
As with all financial and taxation matters, accurate record-keeping is the secret to minimising stress and maximising your entitlements at tax time. A spreadsheet is ideal for keeping track of things like expenses and can simplify the process whether you are doing your own tax return or handing it over to an expert to complete.
Of course, any additional income earned may incur a tax liability, which may not have been an issue previously, so it is also a good idea to have some funds put aside in the event that any tax should be payable on additional income.
For those people deciding whether to invest in a rental property to market through Airbnb or to consider renting part or all of their own home on a short-term basis, talking to a financial adviser or accountant can help to decide which option will suit them best, fit in with existing commitments, and provide the desired financial outcome. Not to mention taking some of the stress out of tax, which everyone knows comes around all too soon!
Canny Accounting, Your Airbnb + Tax Season
Are you looking at putting part of your home on Airbnb to receive some extra income or are you possibly looking to put an entire property on as a listing? Wherever you’re at in your Airbnb journey, our job is to ensure that you are aware of the tax requirements and what this means for when the end of the financial year rolls around
Get in touch with our expert team who are the accountants Geelong turns to for trusted advice when it comes to your finances. Regardless of where you are on your journey, we can guide you through the process from start to finish with holistic advice.
