As a host, the three major tax considerations that you need to be aware of are:
• Income in the form of rent
• Rental expenses and the deductibility
• Capital gains tax (CGT) on sale
Where a room is available for rent to the general public through Airbnb (or a similar online directory), the money received takes the form of ‘taxable income’ and must be reported in your income tax return.
Expenses associated with the rented area (i.e. the occupied room) are 100% deductible when incurred purely for the purpose of generating the rental income. Examples of these expenses include:
• Commission charged by Airbnb
• Repairs & maintenance
• Cleaning products, and
• Professional photography for the listing/advertisement
Your homes operating expenses, such as Council rates, utilities, insurance and mortgage interest, will be deductible to some degree. These expenses can be apportioned based on floor area and/or the period in which the property was available for rent.
There is an assumption that because the property is a family home, the main residence exemption to Capital Gains Tax (CGT) upon sale of the property is applicable. However, once your home starts generating rental income, the property may no longer be entitled to the full exemption. To work out the capital gain that is not exempt, you will need to take into account a number of factors including:
• proportion of the floor area that is set aside to produce income
• period you use it for this purpose
• whether you’re eligible for the ‘absence’ rule
As always, remember to keep records on any income generating activities. Come tax time, these records are proven to be valuable.
While we have provided a general summary of the tax implications, it is important to note that each case will need to be assessed on its own merits. For more information on the tax implications in renting out your home, please consult your Altitude Adviser
