Thinking of listing your property on Airbnb to make some extra income? Recently, Davidsons manager Michael Rebula took to the airwaves with Rob Cameron on 94.7 The Pulse, where they discussed Airbnb tax implications and other important considerations.

You can listen to the audio or read the full transcript below. And make sure you check out Michael’s recent article, which explains Airbnb tax in more detail.

Transcript: Davidsons’s Michael Rebula speaks with Rob Cameron on 94.7 The Pulse

Rob Cameron
Michael from Davidsons Accounting, welcome back to the studio. It’s been a while. Good to chat again. We’re going to go down an interesting path today – it’s a path that I am in, literally, for a little while longer, and that is having a little bit of an accommodation attached to maybe a household or it might be a secondary business, but of course that has tax implications and the old Airbnb, more people are doing it and it’s causing issues in society about housing and housing affordability but it is a reality. But it affects the tax.

Michael Rebula
Yeah absolutely, and we’re finding more, certainly as accountants, with interest rates increasing people are looking at maybe other ways of maybe generating a little bit of pocket money or cash on the side of their main income, and when people might have property assets where they’re living, Airbnb is a trending method of getting some extra cash but certainly there are some tax implications.

Rob Cameron
Some businesses have expenses of course, legitimate expenses, but with this one, apart from cleaning there’s probably not a lot but how much can you legitimately claim? And it might be the refurnishing side or the decorating. Are they all legitimate?

Michael Rebula
Yeah absolutely. And Airbnb income is just a form of rental income. Typically with Airbnb you might rent out your entire property or you might rent out a particular room of your property but any rental income will be taxable income in your tax return, and when we’ve got taxable income in our tax return there’s this process of looking at what expenses were incurred to acquire that income. So furnishings that you might have to get your Airbnb space up to scratch or if you’re buying tea or coffee for your tenants, or

Michael Rebula 0:00
advertising costs, sometimes there’s an Airbnb clip and you have to pay the providers for that – that’s all tax deductible. That’s 100% deductible.

There’s also the deductibility in a sense of, let’s say you’re renting out a particular room in your home, and let’s say that room is 1/5 of your total house space, what you can actually claim is 1/5, in this example of your running costs of the property, so that could be your rates and those other running costs that you typically have with your property. So there are certainly some expenses that you can explore to claim with Airbnb.

Rob Cameron 0:37
And even to down to say, mowing the lawns or having the gutters cleaned?

Michael Rebula 0:42
If it’s communal space. So, what it really comes down to is where in your Airbnb is a communal space? Is it the kitchen? Or are they literally just going into a room, and they’re not allowed to go into the backyard? Sometimes it’s sectioned off places of your home. So, it really depends on what space they’re staying in and the attached communal spaces.

Rob Cameron 0:59
And then of course, the other thing is tying it into additional income. And I know with buying investment properties there’s the negative gearing side of it, which usually has positive taxation implications, but with this, another wave of income. And I suppose it’s that balance then of is it actually worth it? If it’s putting pressure on other incomes? And you’re the right people to answer those questions.

Michael Rebula 1:23
I think with Airbnb, typically when you’re doing an Airbnb, it’s because you want some extra cash and you’re going to do that to make a profit. Most of the time, you’re going to make a profit when you do Airbnb. So negative gearing is when your expenses exceed the income that you’re getting from it, say with a rental property or so forth.

So, it’s more unlikely that an Airbnb property is going to be negatively geared in that sense, but it is a consideration that if you’re going to be earning extra income, that income does get added to all your other income in your tax. If you can imagine it all just goes into a big virtual bucket, and then you’ll pay tax at your marginal tax rates on that extra additional income.

Rob Cameron 2:01
I suppose that the geography of it too, is if you’ve got a house that you initially bought to negative gear and it might be in Torquay, for example, as opposed to one in Herne Hill, the opportunity for Airbnb tenants is far greater on the coast, of course, I mean, even most weekends, people would be looking for somewhere to stay to come down.

So again, it’s around opportunity. And that moral decision of do I put a full-time tenant in my house? Or do I try and take the cash advantages of the short-term higher ones?

Michael Rebula 2:34
Yeah, and it was a trending issue that the government was certainly aware of, as you know, you probably read the newspapers, we’re in a bit of a rental crisis.

Certainly, the demand for rental properties is really high versus the supply that’s there. And when demand is really high it pushes prices up and affects affordability for a lot of people out there who can’t afford to buy property with interest rates and everything as they are, and when rent is increasing, that’s a warning sign for the government.

So, the government is constantly trying to think of ways to make rentals affordable for families and one recent policy that the Victorian Government’s brought in is the 7.5% short-term stay levy. So, what that means is, if you’ve got your Airbnb property on a short-term stay, you’re going to be hit with an extra 7.5% fee. And really, it’s brought in to deter land landowners and to try and bring in long-term rentals.

Rob Cameron 3:32
And is it working?

Michael Rebula 2:35
It’s too short-term to know what’s happening. But I think there’s this trend with properties that it is becoming a little bit less… the return you’re getting on your rental properties is probably not what it once used to be say 20 years ago.

This fee and land taxes are increasing and other things too, so I think it certainly will make landlords think oh, okay, well, I’m going to lose 7.5% of every dollar that I earn under Airbnb, maybe I should put a long-term tenant in to save that. So, I think yeah, it probably will have some implications.

Rob Cameron 4:11
There are lots of things to weigh up of course. If you’ve got a full-time tenant in you haven’t got the issues of cleaning, and maybe haven’t got the worry of damage to property. Certainly, from my own personal experience, sometimes a weekend in an Airbnb can leave a bit of destruction as well. So, you’ve got to weigh all this up.

And I guess, in your organisation, you have that skill already to say well, these are the numbers that need to match up to make it worthwhile going down this path.

Michael Rebula 4:38
Yeah, totally. And I think the good thing about properties and investments is everyone’s different. You know, some people like to have an Airbnb property which is a holiday home in Torquay, because they know during Christmas time and the nice weather they can go down there and use it themselves.

And other people might be like, no, I’m maxed out on my mortgage, so I want I want a tenant in there long-term so I’ve got the regular income stream to meet the mortgage repayments.

Everyone’s going to have a different desire and how they’re going to use their property. And certainly, there’s going to be third party factors that may influence that. But that’s where us accountants or whoever it is that manages your portfolio has a chat to you about these things and can help you make informed decisions around the best way to use your property. And certainly, tax is a consideration with how you decide to use that property.

Rob Cameron 5:26
There are lots of other things happening in the tax world, when you were last on, we were talking about you needing to be really flexible and up to speed with changes to regulations. And it may be as simple as someone coming towards retirement about investment style and types. So as a company, you’re still very much of that service to people to allow them to be flexible and change, not only with their conditions, but the environment that the government sets.

Michael Rebula 5:54
Yeah, absolutely. I think it’s making people aware of their investment portfolio, we certainly don’t give financial advice, but as a general sense, it’s understanding well, what is your investment portfolio? Where are you at in your life cycle? Are we approaching retirement? Are we growing our wealth? Where are we at in that cycle?

And then what assets do we need to fulfill what we’re trying to achieve in in our lifecycle? And certainly, we’re finding with property, what once used to be a 6% or 7% return on your investment, whether on your rental income, that seems to be decreasing in current trends. You know, your 7.5% short term stay, and land taxes are increasing from 1 January next year – they’re going to increase again.

So, all these little things that came off the back of COVID with governments trying to get money back to fill the void of all the handouts that were provided to businesses, much needed handouts during that time, it’s certainly an interesting time when it comes to property, for sure.

Rob Cameron 6:54
Over the last little while we’ve had a lot of discussion about the pressure that interest rate rises have put on mortgagees, but other people who have cash reserves, all of a sudden they’re getting something like a reasonable return again. How much of a difference has that made in your advice structure to people who are at that stage of their life about what they maybe need to do? Is a bit just whacked in cash maybe a lot more comfortable than taking a punt on the share market?

Michael Rebula 7:22
Yeah, I think for retirees that might have, let’s say, a million dollars for example, a portfolio of assets, what used to be a 2% or 1% return on cash didn’t seem too appealing A million dollars can get you 10 grand, it’s not that appealing.

So, people had to really find other avenues to earn a better return, you know, a 5% or 6% return. So whether that’s shares or property, they would have to have to do that. And so, when interest rates are higher, certainly retirees and non-mortgage holders are going to take the benefit of that in a sense that now you’re getting 6% term deposit returns – quite good. Yeah, you can get you can. We’ve had some months get some fives. I think they’re starting to approach 6% now.

Rob Cameron 8:13
Wow, that’s really worthwhile. Because that million – I mean, if you own your own home, and you’ve got a million in cash that’s basically $1200 a week, you could live on that quite comfortably.

Michael Rebula 8:22
Yeah, that’s right. And everyone’s got a different living requirement. You may want to go on holidays every year or whatever you want to do. But yeah, certainly, it’s changing how people might think about their growth of their assets. It’s really interesting space for sure.

Rob Cameron 8:37
So, it does change. Now, as an accountant, you’ll probably be aware, people are relying on you to be up to speed. Do you get a lot of enjoyment out of chasing the right answers? Because I suppose every day there’s a different type of question.

Michael Rebula 8:52
Absolutely. As accountants it’s our role to make sure we’re up to date with all the latest trends. Certainly, when you talk about enjoyment, we get more enjoyment when it’s things that are more beneficial to our clients. If it’s a hit to them, it’s kind of a hit to us. We bear the stress and pressures of our clients.

But when it’s when something like these land tax increases and short-term rent increases, it’s not the best phone call that you want to be making to your clients. But we feel like it’s our role to make sure that we’re keeping them up to date to so they can make informed decisions and ultimately, you know, if it’s a long-term picture like creating their financial wealth to be able to retire comfortably or whatever their goals are, we want to try and assist in that with our clients.

Rob Cameron 9:41
What’s the general mood do you think? Because it’s been quiet for a while – COVID certainly changed things and interest rates then started to put pressure on other areas, but maybe eased pressure in others. But across the board, what’s the general mood out there in the average punter land about their financial state? Are people feeling more or less comfortable?

Michael Rebula 10:05
It’s varying, I think. Certainly, when interest rates were increasing month-on-month people were riding the wave just thinking, okay, when’s this going to stop? And I think with the interest rate rises, you kind of just ride it until we’re at a semi stable position – we’ve had a couple of freezes and we just recently had another increase, but you can tell we’re kind of at this stable position. And I think we’re going to be in this position for a while seems like – that’s my opinion on the stable position.

But leading into Christmas, you know, bills are starting to increase, in November, we come off the back of holidays. I think that’s when we’re going to probably start to feel this financial pressure. Certainly, for a lot of families, there is financial pressure there. And that’s where we, talking about property, people are trying to get creative around trying to make an extra dollar.

So, certainly there’s pressure, I think it’s you can definitely feel it across the client base. It’s really interesting times, you know, we’ve had this such a sharp increase in interest rates, it hasn’t been that sharp for a long period of time. And I think certainly, we have to deal with inflation somehow. That’s the only way we know how to, and when I say ‘we’ I should say the government knows how to stop inflation increases. So, it’s an interesting time. Some clients are just riding it and others are certainly feeling pressure, for sure.

Rob Cameron 11:26
Certainly. And we just want to remind people again, of Christmas, keeping up with the Joneses, and credit cards. Be very, very careful, because it’s fun in December, but it’s not much fun in January when the bill comes.

Michael Rebula 11:40
No, that’s right. And I think this is going to be a year where for a lot of people just getting a budget in place is probably a good idea. Just understanding where you’re sitting financially. Don’t expect that interest rates are just going to drop on 1 January and it’s all going to be good. Whether it’s with your family or with your accountants who should have good skills in preparing budgets and things like that. Just have a plan about going into Christmas, because I think it’s just a unique case scenario with interest rates and mortgages and cash.

Rob Cameron 12:11
And I guess interest rates on credit cards in a lot of cases might even have a ‘2’ in front of them. So, be very, very careful, everyone when you’re tempted. Stick tight to the budget, because January is the month when the pain will come, not now.

Michael Rebula 12:27
Yeah, we don’t like interest. It’s just dead money’s going straight to the banks. Avoid it.

Rob Cameron 12:34
Definitely. Michael, thank you so much for your time. Wise advice again. Davidsons Accounting, as I said, are sponsors of this show. We love our sponsors here. We encourage you to support them. And again, I say if you’re sitting there listening to the show today and feel that your business could do with some exposure, contact us because you might like to be part of The Pulse family and one of our sponsors as well.

But Michael and Davidsons have been long time and very, very good sponsors of the show. We thank you for your support. And hopefully the listeners are coming back to you for support because there’s plenty of wisdom at Davidsons. If you’re having issues financially or you’re going into a new area where you might be wanting to maximise the potential of a new-found situation, go and see Davidsons.

We can help

Our team of specialists can assist you in navigating the complexities associated with rental property tax. To find out how we can help you, contact us on 03 5221 6399 or via email at info@davidsons.com.au.

Disclaimer: This information is of a general nature and should not be viewed as representing financial advice. Users of this information are encouraged to seek further advice if they’re unclear as to the meaning of anything contained in this article. Davidsons accepts no responsibility for any loss suffered as a result of any party using or relying on this article.