With the rise in the sharing economy, Airbnb has become the go-to name in private rentals. But how is Airbnb taxed? Is it considered the same as renting? And do you even pay tax on Airbnb?
This article answers these questions, and helps you understand how to navigate Airbnb income tax.
Liston Newton Advisory help you stay on the right side of the ATO and manage the tax side of your short-stay rental property. Find out more about how we can help you with business advisory guidance and support.
What is the sharing economy? What is the gig economy?
Thanks to the internet, we are experiencing greater connection than ever before. It has led to sweeping cultural innovations like the gig economy.
Also known as the sharing economy, the gig economy started with the rise of remote freelance workers. It focuses more on shared service providers, also working in a similar freelance model. Think rideshare operators, asset sharing (such as camper vans and parking spaces), and the now-ubiquitous Airbnb operators.
But when it comes to managing these types of businesses, the tax waters can get a little murky. So if you’re considering renting out a room or property on Airbnb, you need to determine your Airbnb tax requirements first.
Do I have to pay Airbnb taxes?
Airbnb, while feeling like a side project, is a way to make money from renting out a space you own.
Whether it’s a holiday home, an investment property, or even a spare room, you’re making money from it—and from a taxation point of view, this still counts as income. It all gets included in your annual tax return as part of your taxable rental income.
Therefore, yes, you have to pay Airbnb income tax, and you must declare Airbnb income on your annual tax return.
It doesn’t matter who signed your property up for the platform, either. If you’re the owner, you must pay Airbnb income tax.
But instead of a side project, or a money-generating hobby, it’s best to think of it as a straight rental property. So in order to do this comprehensively, the ATO states that you must:
- Keep records from the platform that demonstrates your generated income.
- Keep receipts for all expenses you’re thinking about claiming Airbnb tax deductions.
How much tax do I pay?
When it comes to Airbnb taxes, just how much tax do you pay on Airbnb income?
Luckily, it’s exactly the same as any other income you earn. Your Airbnb income is taxed at your individual tax rate, as part of your yearly income tax statement.
What expenses can be claimed as Airbnb tax deductions
For taxation purposes, Airbnb is classed the same as any other typical investment property. And like any investment property, you can claim tax deductions to reduce your Airbnb income tax.
You can claim:
- Depreciation on your property.
- Costs for new equipment, such as air conditioners, hot water systems, ovens, etc, as long as you’re not living in the property.
- Rental-related purchases, such as new beds, appliances, and similar.
- Cleaning costs.
- Costs for repairs and maintenance.
- Listing and management fees, photography, and advertising costs.
You can also make partial claims on:
- Any loan interest;
- Utility rates, such as power, water, and internet; and
- Council rates.
When renting out less than the entire property, even if it’s just a single room, your Airbnb tax deductions are apportioned as such. These are then calculated based on the square metre floor area you’re renting.
But be mindful that to claim your Airbnb tax deductions you must have a clear record of when the space was rented out, so you can actually claim these expenses.
Understanding Airbnb GST requirements
When it comes to Airbnb GST regulations, this may actually surprise you.
While you might consider your Airbnb a business, the ATO considers it as standard residential rent. So therefore it doesn’t incur GST.
You’re not liable for any GST on residential rent, nor can you claim GST credits on any purchases associated. Even if your Airbnb turnover exceeds the $75,000 GST threshold, or if you operate another GST-registered business, this still holds true.
So consider your Airbnb as GST-free. But, critically, not tax-free.
Navigating Airbnb capital gains taxes (CGT)
When you sell your family home that's treated as your principal place of residence, you don't have to pay capital gains tax.
However, if you rent it out, even for a short while, then this counts as using the property to earn income. Therefore part of the income you receive from its sale may be counted as a capital gain.
Airbnb CGT calculations will typically be based on the same floor area calculation you used when determining Airbnb tax deductions.
- The CGT period starts from the date your property was first used to generate an income.
- The size of floor area that was rented out is used to determine the proportion of gain for the property.
Can I access CGT discounts on my Airbnb rental?
It's comforting to know however that the usual 50% CGT discount applies. So if you’ve owned the property for 12 months or more prior to the sale, you’re only liable to pay 50% of the capital gain.
In some cases, the CGT main residence exemption (also known as the 6 Year Rule) also applies. This can enable you to avoid paying CGT on the sale. It can apply if:
- You’ve owned the property for less than 6 years;
- The property was your main place of residence prior to renting it out, and you lived in it for at least 6 months; and
- It’s currently no longer your main place of residence. This includes changing your mailing address and drivers license address, and having the electoral roll amended.
Never hide your Airbnb income
In recent years the ATO has become more strict on Airbnb rental properties. They’ve undertaken an extensive program to identify taxpayers earning income from short term rentals like Airbnb—particularly those who didn’t pay Airbnb income tax.
So, as operating an Airbnb is considered as renting, then you must declare it on your income tax. Otherwise it’s only a matter of time before the ATO finds out.
The final word
So, do you have to pay tax on Airbnb? Absolutely. But it doesn’t have to be onerous.
Just make sure that you:
- Understand your obligation to Airbnb taxes under residential rental rules.
- Keep clear records of the times and dates of your rental.
- Collect all relevant Airbnb tax deductions.
When undertaken correctly, Airbnb rental can be a useful way to make extra income from any available property you own. You may even have a little fun along the way.
