Accounting for Airbnb
We recently posted a blog on the booming personal ‘taxi’ service known as Uber. The other popular service that is part of the new ‘sharing economy’ is Airbnb where thousands of taxpayers are letting out a room in their home or apartment on a short-term basis.
Make no mistake, this service is big and getting bigger. In December 2016, some 22,000 properties in Sydney and another 13,000 properties in Melbourne were listed on the Air BNB website. Globally Airbnb hosts share their spaces in 190 countries and 34,000 cities.
Like other sharing services including Uber, Airbnb is all managed online. As a consequence, the income audit trail is very clear and the ATO can access these records. If you are involved in renting out your property (or part thereof) through Airbnb, it is important that you understand the taxation implications. The most commonly asked questions include:
- Does the rental income need to be disclosed in my tax return?
- What deductions can I claim on the property?
- Am I subject to capital gains tax on sale of the property?
- Do I need to register for GST and lodge regular activity statements?
- Do I need an ABN?
Let’s address each of these questions.
Does the Income go in my Tax Return?
The Australian Taxation Office’s guidelines are clear, renting out a property (or a room in a property) via the sharing economy is treated the same as more traditional rental properties. The rental income needs to be disclosed in your income tax return and the only exception to the rule is where the property is offered at a rate below market value (as a favour to family members or friends) and you are looking to claim a loss for tax purposes. The only other circumstance that could potentially fall outside the conventional interpretation is where rooms in a share house are listed on Airbnb to simply recover costs while the regular occupants are on holidays etc. This is quite common amongst the generation of 20 something year-olds paying high rents in inner Melbourne and Sydney. As such, renting part or all your property through Airbnb is no different to other rental properties and you must keep detailed records of rental income and expenditure.
What Deductions Can I Claim?
The types of expenses that you can claim for renting out all or part of your property through Airbnb are the same as if you had an investment property. Common expenses you can claim include:
- fees or commission charged by the facilitator or administrator
- council rates
- interest on a loan for the property
- heating and lighting
- property insurance
- cleaning and maintenance costs (products used or hiring a commercial cleaner).
Whether all or part of the expense can be claimed will depend on:
- the proportion of the year you rent out the room or property
- the portion of the property you have rented out (for example, a room or the whole property)
- whether you use the home or part of the house for personal use when it is not rented out.
You can only claim 100% of these deductions if the property is rented or available for rent for the entire year. The claim will need be apportioned for time rented, including when it’s on the market and empty/available for rental. If you are only renting part of your home, for example a single room, you can only claim expenses related to that portion of the house together with a percentage of common areas like the kitchen and bathroom. You can only claim expenses for when the room was available for rent. If you use the room in any 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.
There are several examples on the ATO website that illustrate the need to pro-rata expense claims but let’s assume you have leased one of the two bedrooms in your unit out for six months of the financial year and your guest also had equal access to the common areas. In this instance you could claim 50 per cent of the expenses in relation to the area available for rental then you need to reduce this amount by 50% given you only had the place available for rent for 6 months of the year. The net claim would therefore be 25% of your expenses against the six months’ rental income. For more complex rental arrangements you would need to base your calculations on floor area sizes.
All of the expenses directly related to the letting of the property can be claimed, such as the facilitator or agent’s fees and depreciation on furniture and fittings in the leased room.
Types of Deductions
The expenses you can claim fall into two main categories.
- The first type are cash or out-of-pocket expenses including fees or commissions from the facilitator or agent, electricity and gas costs, council rates, land tax, insurance, cleaning and maintenance, repairs and interest charged on the mortgage.
- The second claimable expense category is non-cash deductions that include capital allowances being depreciation or deductions over time for identified building (structure) costs (2.5 per cent per annum where eligible and higher rates for furniture and fixtures such as carpet, stoves, hot water systems, air-conditioning, curtains, light fittings and so on).
The cost of these items is usually embedded in a property’s purchase price, but claims will apply where the taxpayer purchases new items or undertakes renovations where that expense doesn’t qualify as a ‘repair’.
Capital Gains Tax
Most people assume that Capital Gains Tax won’t apply on the sale of their family home because it is normally exempt from Capital Gains Tax (CGT). However, if you have used part of your property for income earning activities including rental, your property will no longer be exempt unless you purchased the property prior to 20 September, 1985. Assets bought before that date are not subject to CGT, regardless of whether they are used to derive rental income.
The reduction in the CGT exemption will be based on the proportion of the floor area you rented out and the length of time it was rented. It can be a relatively complex calculation and it is important to seek advice from one of our tax experts if you are using your principal place of residence in the sharing economy.
Do I need to Register for GST and lodge Activity Statements?
GST does not apply to residential property which covers most of the properties on Airbnb. However, there are always exceptions and if you are leasing out something that looks and feels like a hotel room, boarding house or hostel and you provide things like food and board, internet, concierge, transport services etc., it may be considered a commercial residential premises. This could mean GST applies.
If the property is commercial or industrial, or indeed does not have a house on it (such as a spot to camp or park a caravan) then please consult with us as you may need to charge GST. Having said that, there is a $75,000 annual income threshold before you need to register so if your rental income is below this amount you won’t need to register and charge GST.
Do I need an ABN?
Hosting guests in your property through Airbnb, whether it is a room or your entire house, is essentially the same as having an investment property. The income is treated as residential rental income so no ABN is required. On the other hand, if you are running a commercial enterprise through Airbnb and GST applies, then you will need to register for an ABN.
The ATO is looking carefully at the shared economy so you need to ensure you are keeping adequate records. Regardless of how much you earn and whether you are renting out just a room in your home, your entire apartment or your whole house, you need to keep records of all income earned, your expenditure and dates the place was available for rent.
As an Airbnb host, you need to understand your tax implications. It is important to remember that every host’s individual situation is slightly different and while the above information is a general summary of the tax issues facing Airbnb hosts, we recommend you consult with us if you are earning or looking to earn through the sharing economy.