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Airbnb tax essentials: A guide to managing rental property taxes

Many Australians find Airbnb hosting appealing and a great way to boost their income. But navigating taxes as an Airbnb host can be tricky. In this article we help you understand Airbnb taxation and how you can maximise financial outcomes.

In recent years, Airbnb has become a major player in Australia’s share economy. Many Australians find the prospect of becoming an Airbnb host appealing because it offers freedom, flexibility, and the opportunity to generate additional income.

However, navigating taxes as an Airbnb host can be tricky. To take the stress out of tax time, we’ve compiled a handy guide with everything you need to know about Airbnb tax.

Understanding Airbnb taxation

Although there is plenty of information out there for rental property owners, the tax considerations for Airbnbs are unique and there are particular deductions that Airbnb hosts should be aware of. To help you navigate through Airbnb tax, we’ll explore declaring Airbnb income, how to maximise deductions, and how to keep proper records.

Navigating Airbnb income declaration

Unfortunately, there’s no avoiding Airbnb tax. Rental income must always be declared when the amount of rent is at commercial or market rates, and this includes Airbnbs. The exception is if you are renting to a friend or family member at a significantly lower rate.  However, you won’t be able to claim tax deductions for that period if you do so.

The ATO flags anyone who hasn’t declared their income. From there, they will send a warning letter and may apply fines for failure to declare income. To avoid getting in trouble with the ATO, it’s best to declare your rental income upfront.

Maximising deductions for Airbnb hosts

If you make a taxable profit on your Airbnb for the financial year, this will be taxed at your marginal tax rate. If your property title is in joint names with someone else, you will each have to declare 50 percent of the income and expenses in your tax returns.

You can also claim tax deductions against your other taxable income if your Airbnb makes an overall loss.

Although you can’t avoid paying rental property taxes on your Airbnb, you can minimise your tax by taking advantage of relevant investment property tax deductions. Generally, any expense related to earning your Airbnb income will be tax deductible.

The main types of deductions you can claim are:

Airbnb and guest expenses

Airbnb and guest expenses are 100 percent attributable to Airbnb which means you can claim a tax deduction for the full amount of these expenses.

They include:

  • Food, toilet paper, and other supplies used only by guests
  • Linen, furniture, appliances and equipment under $300 used only by guests
  • Depreciation on furniture, appliances and equipment over $300 used only by guests
  • Laundry and cleaning costs of guest rooms/linen
  • Photography and other listing expenses
  • Airbnb fees
  • Tax agent fees

Airbnb whole home expenses

These expenses may not be fully deductible if you share your home with guests or if you rent your entire home but you block it out or use it privately at any time of the year. If you share your home with guests, you’ll have to apportion your expenses between tax-deductible Airbnb use and non-tax-deductible private use.  Similarly, if your Airbnb is not available to guests some days during the financial year, your whole home expenses won’t be deductible on those days.

Whole home expenses include:

  • Loan interest (if you own your home)
  • Rent (if you rent your home)
  • Electricity and gas
  • Water rates
  • Insurance
  • Cleaning of shared areas
  • Purchase price of furniture and assets under $300
  • Depreciation on furniture and assets over $300

Navigating Airbnb depreciation

Depreciation involves spreading the tax deduction for the cost of an asset over its lifespan. Assets including items such as beds, furniture, TVs, kitchen appliances, and those costing over $300 must be depreciated. The ATO provides guidelines for calculating deductions for an asset’s decline in value.

Another element of depreciation that you should take into account is building depreciation (capital works). How your building depreciation is claimed will depend on when the building was built. If it was built after September 1987, depreciation is claimed over 40 years.  If it was built between July 1985 and September 1987, the claim would be over 25 years. Building depreciation cannot be claimed on buildings built before 17 July 1985.

To claim a deduction for building depreciation, you’ll need a depreciation schedule prepared by a quantity surveyor. A quantity surveyor is a professional who is able to estimate what your property would have cost to build.  They will provide you with a depreciation report which will tell you how much you can claim as a tax deduction.

Effective record-keeping for Airbnb tax compliance

The ATO requires you to keep records of your expenses for five years. These records may be either physical or digital, but must show the date, amount, supplier, and nature of the purchase.

Keeping physical records in an expanding file with each section labelled will help you stay organised for tax time. You can keep digital records organised by creating a folder on your computer and labelling each file with the financial year and category.

A simple method to organise your expenses at the end of the financial year involves accessing your online banking, where you can download a CSV report containing all your transactions from the year. Once downloaded, open the CSV file using Excel and sort alphabetically. This will allow you to easily identify and group all your expenses together, simplifying the process of tallying them up. Although it’s generally easier to do your bookkeeping as you go, this is a handy tip if you decide to do your taxes at the end of the year.

Tailored financial advice for Airbnb hosts

Financial Spectrum’s experienced financial planners and accountants can help you navigate the complexities of Airbnb taxation. For tailored advice on minimising your Airbnb tax, book a free, no-obligation meeting with one of our financial experts today.

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