Updated September 2023
With interest rates rising, inflation increasing and the general cost of living growing, many Australians are looking for new ways to earn extra income to meet these cashflow demands.
One increasingly popular way to earn extra income has included renting out your home (including part or all of your house or unit) through various digital platforms like Airbnb, Home Away, or Flipkey.
If you own a property and are considering renting your property under these types of arrangements, it is important you understand the taxation consequences of doing so.
One of the most common platforms for homeowners to market and rent their properties has been through a platform called ‘Airbnb’.
Airbnb is an online platform that was developed in 2008 where a traveller pays a fee (rent) to stay at a renter’s home instead of a hotel.
Any income derived from rent, whether it be from Airbnb or other platforms, will typically be assessable income and will need to be included in your tax return. You can claim a tax deduction for the expenses that directly relate to your rental income during the period it was rented. Some expenses include:
- Advertising costs;
- Airbnb or other platform fees and commissions costs;
- Depreciation for furniture and fittings;
- Maintenance and cleaning costs;
- Repairs and maintenance to the property; and
- Food amenities, such as tea, coffee, and other foods made available to guests.
Where only one or 2 rooms are rented on Airbnb while the balance of the home is used as the owner’s main residence, the tax deduction will be limited to the expenses incurred in relation to the portion of the house rented, or available for rental. This portion is typically determined by working out the floor space being rented as a portion/percentage of the total living space.
Record keeping when renting out your home
If you decide to rent out all or part of your home, you will need to keep records of all income earned to declare it in your tax returns.
You will also need to keep records of all expenses you can claim as a tax deduction to offset the income.
Importantly the ATO may already have details of any rental arrangement through its data matching avenues. That being said, it is vital you have evidence to support all income and expenses being reported in your Tax Return (as is the case for all information being reported in your tax return).
As a property owner, you make a ‘capital gain’ if you sell a Capital Gain Asset, such as a house, and make a profit. Any Capital Gain you make is assessable income and must be included in your tax return in the year you make the gain.
A capital gain from the sale of your main residence (the home you live in personally) is typically exempt from capital gains tax (CGT).
Where the whole of the property is being rented out on Airbnb the full main residence exemption can continue to be available provided the:
- period of the rental since ceasing to be the owner’s main residence did not exceed 6 continuous years before sale;
- owner did not have any other property as a main residence; and
- sale did not occur while the owner was a foreign resident for tax purposes.
Where only part of the home is rented out, the full main residence exemption may no longer be available (in the event the above points are not satisfied) and the owner may only be entitled to a partial main residence exemption. The capital gain will need to be apportioned on a reasonable basis based on the period of ownership used for rental purposes and the portion of the property used for income-producing purposes.
CGT can be a complex area, so it is important that if you are considering using your home for this type of rental activity, you obtain guidance from your advisor about the taxation implications of doing so.
It is also worth noting that if you use Airbnb or other platforms to rent out all or part of a property you don’t own, CGT will not apply to you (as this is only applicable to the asset holder).
Rental income received under an Airbnb arrangement for residential property does not impose any GST ramifications (assuming you are not running an Airbnb business/enterprise).
This means you are not liable for GST on the rent you charge and cannot claim any GST credits on the expenses.
7.5% Short Stay Levy
On 20th September 2023 the Victorian Government announced the introduction of a 7.5% levy on short-term accommodation platforms such as Airbnb and Stayz that will come into effect from 1 January 2024.
The levy is part of the Government’s Housing Statement, the purpose of the levy being to make short-term stays more costly for landlords, encouraging them to consider more appealing longer-term rental returns.
The first levy of its kind in the country, it is possible other State’s may adopt similar measures, likely after reviewing the impact the Victorian levy has. More information on the levy and its application will be provided in due course.
We can help
We have specialists on hand that can assist you in navigating the complexities associated with the taxation of rental properties. Contact us on 03 5221 6399 or at firstname.lastname@example.org to discuss how we can help you.
This article was written by Manager of Tax and Business Services Michael Rebula.
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 are 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.