If you are considering joining up with Airbnb in order to rent out a part of your residence, there are important things to consider regarding how you manage your taxes.
The income you earn from Airbnb activities will be assessable income in the eyes of the ATO and should be reported on your tax returns (along with associated expenses, see below).
Generally, related expenses incurred in deriving Airbnb income are tax deductible.
These expenses can be broken up into 3 main categories:
- Expenses that are directly associated with the rented area (e.g. a bedroom that is rented out) can be deducted in full.
- Expenses that relate to common or shared areas (e.g. lounge/dining rooms) need to be apportioned in relation to the percentage of Airbnb tenant & landlord use.
- Expenses that relate to the landlord’s personal space are not tax deductible.
Examples of expenses that may be fully tax deductible:
- Depreciation of furniture used in the rented room (such as beds, desks and drawers).
- Cleaning costs of the area that is occupied by the tenant.
- Repairs and maintenance.
- Food provided to the guests.
- Advertising costs for Airbnb listing (professional photographs etc.).
- Associated service fees or commissions paid to Airbnb.
You will need to apportion any expenses that relate to the property as a whole. Generally, for apportionment purposes, floor area comparisons between the rented areas and the total property are used (e.g. total home is 200m2, rental area is 40m2 = 20% rental).
Examples of expenses that may require apportionment:
- Interest paid on your mortgage
- Council rates & water
Expenses that relate to shared areas should be apportioned based on access. As an example, if the tenant and landlord had equal access to the kitchen, dining room & lounge room, 50% of related expenses could be tax deductible.
Must be rented or available for rent in order to claim deductions
It is important to note that expenses are only deductible in relation to the period of time that an area of the property is actually being rented out, or is available for rent.
As an example, if a room was available for rent (advertised on Airbnb as vacant and available for rent) for 6 months, only the portion of related expenses incurred over that 6 month period will be deductible.
It is important to understand your income tax obligations and ensure you put away part of your Airbnb income to cover any potential tax liability (particularly during the first year). After your first year of Airbnb operation, the ATO may ask you for quarterly tax instalments in advance to cover your second year of operation (based on income earned in the first year).
An Airbnb landlord earning $35,000 for the year will need to put away around $3,500 for tax (if Airbnb is their only income). However, for a landlord who also works a day job earning, say, $50,000 from wages, will need to put away around $12,500 to cover the tax on the $35,000 earned through Airbnb.
The above example relates to sole ownership of the property, for jointly owned properties, the tax liability would differ.
Capital Gains Tax
When you sell your private residence, the sale is generally free of capital gains tax. However, if you have used part of the property for income producing activities, like renting it out through Airbnb, part of any capital gain made on the sale of the property will be taxable.
It is a good idea to get a property valuation from a licenced agent at the date the property is first used to produce rental income. This valuation will be required for future capital gains tax calculations.
GST & ABN
GST does not apply to residential rents, so there is no need to register for GST, nor should you charge GST to your tenants or claim any GST credits on your related rental expenses. This is the case even if your turnover exceeds the GST threshold of $75,000.
There is also no requirement to have an ABN, as renting out part of your home is not classified as running a business.
You are required to keep proper records of all income earned and the deductions you claim for (such as invoices, receipts, bank statements). In an audit situation, you will also be required to show how you have calculated any expenses which require apportionment (e.g. floor plans to show floor area comparisons).