Airbnb ATO and Tax

Hi everyone, Since I have started to do some Airbnb and contacted my accountant to know the rules, I though it would be useful to share some of my findings:

CONTENT

  • How does the ATO treat Airbnb accommodation style sharing services? What you need to know
    • sharing a room or an entire house
    • Hosting for Investors
    • Sharing property owned by your SMSF
How does the ATO treat Airbnb, Uber, style services? What you need to know.
 Uber is calling for drivers, Airbnb is seeking more hosts but what are the implications of becoming part of the sharing economy?
 
The basics of tax apply regardless of how you earn money.  That is, even though you may be earning income from different sources or using different platforms to generate income, the fundamental tax issues remain the same. You don’t have to be carrying on a business to pay tax on income you earn.
 
And, given that so many of these services are through sharing platforms, the Australian Tax Office (ATO) has the capacity to data match money flowing through to financial institutions specifically from these platforms.



‘Sharing’ a room or an entire house
Sharing a room or your house through services such as Airbnb can be a great way to earn income from an existing asset.  The tax treatment of what you earn from these services is the same as any other residential rental property arrangement.  This means you must include the rental income in your income tax return.  For example, if a husband and wife jointly own a property that they rent out through a sharing service, whatever they earn needs to be declared on their income tax returns in the same proportion as the ownership of the house in the year they earned the income.
 
Hosts can also claim tax deductions for expenses associated to the rental, such as the interest on your home loan, professional cleaning, fees charged by the facilitator, council rates, insurance, etc.  But, these deductions need to be in proportion to how much and how long you rent your home out.  For example, if you rent your home for two months of the financial year, then you can only claim up to 1/6th of expenses such as interest on your home loan as a deduction.  This would need to be further reduced if you only rented out a specific portion of the home.
 
GST does not generally apply to residential rental income.
 
Be aware that renting out your home may have a direct impact on your tax-free main residence exemption for capital gains tax (CGT) purposes.  In general, your home is exempt from CGT when you sell it.  However, if you use your home to earn assessable income, then you might only qualify for a partial exemption on the sale unless special concessions apply.  If you are renting out part of your home while still living in the property, then it is unlikely that any gain you make on your home will be fully CGT-free.  You might also need to obtain a valuation of your home at the time it was first used to generate rental income.



Hosting for investors
A number of investors are generating income from renting residential investment properties exclusively on sharing services rather than traditional longer-term rental arrangements – rental income can be higher for short-term accommodation and the host has the capacity to increase prices easily for peak periods.  Just a quick look at properties available around the world on sharing sites shows how quickly this style of arrangement has attracted investors, particularly where the property is located in high demand tourist areas.
 
But what are the tax implications if you own one or multiple investment properties and rent them on a sharing service?  Firstly, it’s important to get good advice as this can be a complex area and being on the wrong side of the tax law can have significant implications.  For example, if the ATO deems you to be providing commercial residential accommodation, they will treat your activities in the same way as hotels and motels meaning that the

  • rent could trigger a GST liability for you (although you might be able to claim back some GST credits on expenses you pay). 

Broadly, accommodation falling into this category would have

  • multiple occupancies such as a block of apartments,
    • central management of the properties, and
    • provide services to the guests beyond the accommodation such as breakfast or room servicing. 

Before becoming a host, as a minimum, it’s important to understand the tax implications of your arrangement, check if there are council restrictions, and ensure that you have the right insurance in place.
 


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