As specialist property accountants we look after a lot of clients with Airbnb rental incomes.

Most earn a side income from letting out parts of their own homes. Others have found Airbnb a more profitable way to let out ordinary self-contained rental properties.

Whichever camp you’re in, it will pay you many times over to know your way through the Australian property tax maze.

You probably already know that any money you make from Airbnb contributes to your assessable income. So it’s taxable.

What you may not know, is that using part of your primary dwelling for rental purposes increases your tax exposure when you come to sell it.

But let’s start with the good news.

There’s also a long list of expenses for which you can claim deductions.

Tax Breaks for Airbnb Hosts

You can claim for most expenses that result from providing or promoting your accommodation.

However, you’ll need to provide proof in the form of receipts, or digital records the ATO can verify if it decides to take a closer look.

Some of the more straightforward deductible expenses are:

  • The Airbnb 3% commission you pay on each let
  • Photography and any other advertising related costs
  • Laundry and cleaning costs relating to the let
  • Toiletries for guests
  • Food and beverages for guests

Be aware the ATO may challenge excessive claims for items where it sees potential for abuse; for example, high claims for laundry, food and other consumables. So you’ll need to be able to show how these expenses relate to guest visits.

Other deductible expenses include:

  • Electricity gas and water
  • Internet and phone
  • Repairs
  • Gardening
  • Guest entertainment – such as computer games, books, magazines and DVDs
  • Insurance
  • Depreciation in value of appliances and furniture
  • Interest payable on a mortgage, or a loan to buy fixtures, fittings, appliances or carry out improvements to the property

If your Airbnb rental is part of your principal dwelling, you will need to apportion these expenses according to guest and private use.

Where you share use of services or items with guests – e.g. utilities and internet, you can only claim for the percentage that relates to guest use.

In the case of insurance, you’ll only be able to claim for the difference in costs between insuring your home as a part rental and a purely private dwelling.

If you’re claiming for items such as DVDs, magazines and computer games, you need to be able to prove they genuinely are for guest use. Copies of your Airbnb listings that show them included in the let would be useful here.

Your mortgage interest deduction is normally apportioned according to the percentage of floor space you devote to Airbnb rental.

Your Premises Must Be Genuinely Available For Rent

Many expenses for which you can claim deductions are allocated to a set period i.e. a year, a quarter or a month.

For example, depreciation, routine maintenance and insurance costs are normally spread over 12 months. Utility bills might be monthly or quarterly.

For items like these you can only claim for periods when your premises are genuinely available for rent.

So if your space is only available to let for 6 months of the year, you’d be entitled to half the full year’s depreciation allowance and insurance costs.

If it’s only available for one week in a given month, you can only claim for 25% of that month’s electricity and internet bills.

Due to high numbers of inflated claims, the Australian Tax Office now takes a keen interest in when you’re genuinely available for rent.

Simply listing your space on Airbnb is no longer enough to prove that you’re genuinely available for rent.

You also need to show that you’re not deliberately putting visitors off with unattractive terms, such as high rents, unreasonable demands for references or unattractive photos or descriptions.

Capital Gains Tax Shock

Tempted to exaggerate the percentage of your home you devote to Airbnb so as to claim more expenses?

Think again!

We normally think of our principal dwellings as exempt from Capital Gains Tax.

But that all changes once you start using your property to earn a rental income.

Even if you’ve lived there permanently for years, the profits on the sale of your home become assessable for Capital Gains Tax (CGT).

Your Capital Gains Tax liability will be in proportion to the percentage of your home you’ve let out and the percentage of time it’s been available for rent during your tenure.

Just like interest deductions, the ATO normally apportions your CGT liability along the lines of percentage floor space you devote to Airbnb use.

This rule gives Airbnb hosts good reason to be cautious about how much floor space to claim for rental purposes. Exaggerated claims for expenses could mean real pain when the time comes to sell.

Keeping Abreast of Change

Australian property tax laws are amongst the most complicated in the world and they’re constantly changing.

If you know what you’re doing, Airbnb can provide a very good income stream.

But it’s all too easy see your gains evaporate for the sake of some timely, up to date advice and planning.

Would you like expert help making the most of your Airbnb income?

Why not contact us for a free consultation to see how we can help?

Just send a message through our contact page and ask for a free consultation.