Blogs
Dealing with Tax and Renting via Airbnb - 23rd April 2018
Airbnb
is one of many examples of the "sharing economy" - connecting buyers (users)
and sellers (providers) through a facilitator that usually operates an app or a
website. Airbnb acts as this facilitator by allowing individuals, referred to
as "hosts", to rent out a room of their house or their whole house for a
short-time basis via its online platforms.
While the focus here is on Airbnb, the tax concepts outlined could be applied in a more general sense to anyone seeking to rent out a part of their home, whether through Gumtree, Realestate.com.au, Flatmates.com.au and so on.
The tax issues raised relate to hosts who:
- own their own home;
- live in it full time; and
- want to generate some dollars by putting up an identifiable area of their home for rent.
As
a host, the three major tax considerations that you need to be aware of are rental income, rental
expenses, and capital gains tax.
Rental income
The main question hosts need to ask themselves here is
whether a commercial amount of rent is being charged. Generally, where a room
is advertised for rent at market rates to the general public through Airbnb (or
a similar online directory, but we'll use Airbnb as the generic term) the
arrangement is likely to be at "arms-length" and hosts would be required to
declare their rental income.
Rental expenses
Where the rental arrangement is at "arms-length" and income
is declared, hosts would be entitled to tax deductions for expenses incurred in
deriving that rental income.
- Expenses that are directly associated with the rented area - deductible in full.
- Expenses that relate to shared areas - apportionment required.
- Expenses that relate to the host’s private area only - not deductible.
Depreciation
on furniture purchased for use in the rented room is a good example of an
expense that is directly associated with the rented area of the host's home,
and would be deductible in full.
Some examples of other expenses that may be deductible in full include:
- commercial cleaning of a rented area;
- repairs and maintenance;
- professional photography for the listing; and
- host service fees charged by Airbnb.
Where
there are expenses that relate to the entire property, apportionment is
required. The ATO has indicated that floor space can be used as a general
approach for apportioning expenses.
Some examples of expenses that relate to the entire property and may be deducted in this way include:
- mortgage interest;
- council rates;
- utilities; and
- insurance.
It is important to note that where capital works are undertaken in relation to the property, capital works deductions are generally not available to hosts, as they are also using the property for their own residential accommodation.
Expenses that relate to shared areas can be apportioned based on access. In regard to using floor space as an indicator, if say one tenant and one host had equal access to shared areas, the host could therefore claim for 50% of these expenses.
Examples of expenses that relate to shared areas only, and may be deductible in this way, include:
- depreciation on furniture and appliances located in shared areas;
- internet; and
- cable TV.
One
final thing to note in relation to expenses is that they are only deductible
where an area of the house is either actually rented out, or genuinely
available for rent. For example, where a room in the host's home is only
available for rent for 90 days a year, say while a housemate is away, then only
the portion of rental expenses that were incurred during that 90-day period
would be deductible and further apportionment may be required.
Capital gains tax
In general terms, the sale of an individual's primary
residence is CGT-free under the main residence exemption if the dwelling was their main
residence for the entire time they owned it, and it was not used to produce
assessable income.
However
as hosts are renting out a portion of their home on Airbnb, they are using a
portion of it to produce assessable rental income and therefore would only be
only eligible for a partial main residence exemption. This means that hosts may
be taxed on a portion of any capital gain realised upon the sale of their main
residence.
Remember
that "pre-CGT" assets (bought before 20 September 1985) are not subject to CGT,
regardless of whether they are used to derive rental income.
Dealing with a post-CGT main residence
The below scenarios assume the following:
- the host purchased their home post-20 September 1985
(and therefore may be subject to CGT on the sale); and
- the host would have been eligible for the main residence exemption from the time that they purchased their home until the time that they started renting out a portion of their home.
A
basic scenario would be one in which a host rented out the same part of their
home from the time that they purchased it until the time that they sold it. In
this case, the part of the home used to produce assessable income would be
subject to CGT and the private portion of the home would be CGT free under the
main residence exemption. As with expenses, an apportionment based on floor
space may be used to determine the portion of the property that is subject to
CGT.
A
more common scenario may be where the host began renting out a part of their
home some time after moving in. The calculations under this scenario can differ
depending on whether the host first began using their home to produce
assessable before or after 7.30pm on 20 August 1996.
The
reference "first used to produce assessable income" would generally be the
first time a host rented a part of their home out (whether on Airbnb or
otherwise). However, if the host had previously used part of their home as a
home office or workshop at some time in the past, it may actually be that time
that the home was "first used" to produce assessable income.
Pre-20 August 1996 property
Where the host first used their home to produce assessable
income prior to 7.30pm on 20 August 1996, they would need to calculate the
portion of the ownership period in which they used the entire house for private
purposes and the portion in which they were renting part of the house out.
Purchased: 1 July 1991 (used 100% for
private purposes)
First rented a portion of house: 1 July 1995 (30% of total floor space
apportioned to tenant)
Sold: 1 July 2012
Total days house was owned: 7,671
Total days portion was rented out: 6,210
Gain on sale: $100,000
Calculation: $100,000 x 6,210/7,671 x 30% = $24,286 gross capital gain.
This
gross capital gain could then be reduced further by either indexation or the
general 50% CGT discount, as the property was held for at least 12 months.
Post-20 August 1996 property
Where the host first used their home to produce assessable
income post-20 August 1996, the calculation is slightly different. Firstly, the
host is deemed for tax purposes to have acquired the property as at the date
that the house was first used to produce assessable income and secondly, a
market valuation, calculated at that date, may be required, which is then taken
to be their deemed cost base to be used in calculating any future capital gain.
This valuation could come from a registered valuer or could be calculated by
the host, however it is important to note that the ATO has the power to
challenge valuations.
Purchased: 1 July 1991 (used 100% for
private purposes)
First rented a portion of house: 1 July 1998 (30% of total floor space
attributable to tenant)
Market value @ 1 July 1998: $200,000
Sold: 1 July 2012
Sale price: $500,000
Calculation: ($500,000 – $200,000) x 30% = $90,000 gross capital gain.
This amount may be reduced further by either indexation or the general 50% CGT
discount.
These
two scenarios are relatively straightforward. Where different portions of the
house were available for rent during the host’s ownership period, or where the
entire house was rented during some periods and was used 100% for private
purposes during other periods, the CGT calculations can become very complex.
Goods and services tax
Income from renting out part of a residential property is
typically "input-taxed". This means that hosts should not charge GST on the
rent that they earn from guests. Conversely, hosts cannot claim input tax
credits for any rental expenses that they incur, but are entitled to claim the
GST inclusive amount of any rental expenses as a tax deduction.
Be
aware however that GST may apply if host is taken to provide "commercial
residential premises" - which includes, among other things, accommodation that
is a hotel, motel, inn, hostel or boarding house. Remember also that being
registered for GST is subject to the host exceeding the $75,000 turnover
threshold.
PAYG instalments
If hosts report more than $2,000 of rental income on their
latest lodged tax return, they may receive a letter from the ATO notifying them
that they are required to begin making periodic PAYG instalments. These are
essentially prepayments of tax that are offset against the host’s final tax
liability at the end of the year upon lodging their tax return.
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