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. 

Airbnb

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 
  • Food amenities, such as tea, coffee, and other foods made available to guests 

It is important to note you will only be able to claim a portion of the expenses which relate to both the rented space and your living space (if you live in the property whilst it is being rented). 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).

Capital Gains

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 usually exempt from capital gains tax (CGT).

However, if you rent part of your main residence to earn income (for example rent out a room via an Airbnb platform) you will no longer be eligible for the full CGT main residence exemption and may be subject to CGT on a portion of the sale. This will generally be determined by giving consideration to the floor space used and the time the house is rented for.  

Losing the CGT main residence exemption when you rent your home via this type of platform will not always be the case. If you move out of your home completely whilst the property is rented and you live elsewhere for a period of time, you may be eligible to apply the 6 year absence rule and continue to access the full main residence exemption on the eventual sale of your home.

CGT can be a complex area so it is important, should you be considering using your home for this type of rental activity that you obtain guidance from your advisor as to the taxation implications of doing so.

It is worth noting if you are using Airbnb or other platforms to rent out all or part of a property that you don’t own, CGT will not apply to you (as this is only applicable to the asset holder).

GST

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. 

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 info@davidsons.com.au 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.