Founded in 2008 in San Francisco, AIRBNB is a community marketplace for people to list and book accommodation around the world. Bookings are made online (on a sharing economy website) or from an application (app) on a mobile phone or tablet. Landlords (or “Hosts” as AIRBNB like to call them) set the price and the conditions of the rental while guests receive a personal touch and insight into the area.
Hosting
The properties available are not professionally run, instead, they are homes and apartments of individuals making their homes available for short-term letting.
AIRBNB Hosts receive payments through a secure platform handled by AIRBNB.
Is AIRBNB income rental income or business income?
The ATO states that AIRBNB income should be declared as rental income and not business income. It’s important you advertise your property on the AIRBNB platform, that its genuinely available for your guest to rent and that you charge market rates for rent. Check AIRBNB for average rents for your location e.g. in December 2021, the average price of Sydney listings was $160 per night and in Melbourne was $118 per night.
In the case of taxpayers who own multiple properties, they however may be considered to be running a business.
AIRBNB Expenses
The types of expenses that can be claimed are the same as a conventional residential rental property:
- a) Council and water rates
- b) Body corporate fees
- c) Insurance
- d) Interest on a loan for the property
- e) Borrowing costs on loan for the property
- f) Capital works deductions
- g) Electricity and gas
- h) Cleaning-this can be a commercial cleaning service or the cost of cleaning products used by the property owner
- i) Repairs and maintenance
- j) Depreciation on assets – such as furniture, televisions, DVD players, air conditioning, kitchen appliances. From 1 July 2017 depreciation can only be claimed on assets purchased by the property owner (not by a previous owner). This change is not applicable to entities carrying on a business of renting out properties.
Specific AIRBNB expenses:
- a) Fees or commission charged by the facilitator or administrator (around 3%). This includes AIRBNB host protection insurance which covers the property from accidental damage, and, liability in case the guests are injured.
- b) Professional photography for property listing on the AIRBNB website
- c) Internet and telephone
- d) Computer/tablet – may need to be apportioned for private usage
- e) Motor vehicle travel-collecting supplies, picking up guests from airport or transit station. From 1 July 2017 travel expenses are no longer deductible, unless the entity is carrying on a business of renting out rental properties
- f) Guest supplies such as toiletries, newspapers, magazines, food and drink.
Whether all or a portion of these expenses can be claimed will depend on the following:
- ▪The nature of the expense
- ▪The number of days the property was rented or available to rent
- ▪The portion of the property rented (a room, part of the property or the whole of the property). If the property or part of the property is used for private purposes when not rented. For example, using a room for storage when guests are not staying.
Renting Out Your House or Room on AIRBNB
You will need to apportion expenses for renting out a room or part of a residence.
To do this, it is best to use a floor area basis:
- Firstly, the floor area of the whole residence is required.
- Secondly, the floor area of the specific area that the AIRBNB Guest is solely using.
- Thirdly, the floor area of any common areas that the Guest will have access to.
Example:
Suzanne owns a two-bedroom townhouse close to the CBD and she decides to rent out the second bedroom to help cover her outgoings. She advertises on AIRBNB and has a constant occupancy rate. The guests will have access to common areas of kitchen, living area, laundry and bathroom.
The floor area of the townhouse in total is 92 square metres. The floor area of the second bedroom is 12 square metres. The floor area of the common areas is 60 square metres.
Suzanne can claim the following;
▪ Second bedroom 12 square metre x 100% = 12/92 x 100% = 13.04%
▪ Common areas 60 square metres x 50% = 60/92 x 50% = 32.61%
▪ Total 13.04% + 32.61% = 45.65%
Suzanne can claim 45.65% of the general expenses such as council and water rates, interest on mortgage, body corporate and electricity Suzanne can claim 100% of the AIRBNB fee and any other expense that is related solely to the renting out of the second bedroom.
The expenses may also need to be apportioned for time that the area is rented (or available to rent).
Example:
If Suzanne (from previous example), had rented out the second bedroom for 315 days, then the above calculations would also need to be apportioned for time:
Second bedroom (12/92 x 315/365) x 100% = 11.26% Common areas (60/92 x 315/365) x 50% = 28.14% Total 11.26% + 28.14% = 39.4% Suzanne can claim 39.4% of the general expenses such as council and water rates, interest on mortgage, body corporate and electricity.
Suzanne can claim 100% of the AIRBNB fee and any other expense that is related solely to the renting out of the second bedroom.
Subletting a Property Used as an AIRBNB
Income earned by subletting a rented property is assessable income to the original tenant. Deduction for expenses can be claimed-such as internet, electricity and a proportion of the rent. As the initial tenant does not own the property the AIRBNB income earned by subletting would be declared as business income instead of rental income.
There are no CGT implications for the AIRBNB host as they do not own the property.
TAX IMPLICATIONS OF HOSTING A PROPERTY ON AIRBNB
ABN
There is no requirement to obtain an Australian Business Number (ABN) UNLESS your hosting entity is carrying on a business of renting out rental properties OR where the host earns more than $75,000.
Goods and Services Tax (GST)
There is no GST on residential rent as it’s input taxed which means you don’t charge GST to your guests and nor do you claim back the GST. Even if the taxpayer is carrying on another GST registered enterprise, there is no requirement to account for GST on income earned from renting out a room, house or a unit. However, the ATO advises that taxpayers must account for GST if they provide accommodation like a hotel room or serviced apartment, a bed and breakfast, or rent out commercial spaces like a function room or office space.
If the taxpayer is already registered for GST for another enterprise, then the AIRBNB Host income will also be accountable for GST (even if the Airbnb Host income is less than $75,000).
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.
Business Activity Statement (BAS)
Once registered for GST (i.e. over $75K in letting fees) the taxpayer must lodge BAS in accordance with ATO guidelines.
Income Tax Implications
Assessable income and expenses related to rent are declared at Item 21 on the individual tax return, unless the entity is carrying on a business of renting out rental properties in which case the assessable income and expenses are declared at Item 15 on the individual tax return. Small Business Entity tax concessions may be available through the tax return.
Capital Gains Tax (CGT)
CGT is a very complex area of taxation law and there are multiple laws, cases and rulings in force and likely each host situation will be slightly different.
The fact is there may be a CGT liability if a main residence has been used to earn income through AIRBNB. Normally of course your family home is exempt from CGT, but by using the property to earn an income you may fully or partially lose this exemption which can have large financial consequences that need to be consider BEFORE first hosting your property on AIRBNB.
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.
The property owner should be advised to obtain a written valuation for the host property on the date that AIRBNB income commenced for CGT purposes. This is regarding the ‘First used to produce income’ rule (s 118-192 of the ITAA 1997) i.e. is the 1st time you have ever used the property to earn income AFTER 20 August 1996? An independent professional valuation is best but ultimately any knowledgeable person can make the valuation BUT remember the ATO has the power to challenge valuations. You will need this property valuation figure when you sell your property and it comes time to calculate if you are liable for CGT on the sale.
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.
Land tax
As discussed in the Property specialist topic, land tax is payable according to each state/territory regulations.
Property owners can claim an exemption from paying land tax on their main residence. This exemption may not be fully available when the property has been used to earn assessable income through AIRBNB. As such property owners may be liable to pay a proportion of land tax on the property used for AIRBNB purposes.
AIRBNB Co-Hosting
AIRBNB also pays a ‘Co-Hosting’ fee for those taxpayers who are not renting out their own property but who are co-ordinating for other property owners.
The role includes the following:
▪ Create a listing ▪ Handle reservations ▪ Review guests ▪ Welcome guests in person or via messaging (emails or phone texts) ▪ Restock essential supplies ▪ Respond to guest issues ▪ Co-ordinate cleaning and maintenance.
Income received is generally 10%-20% of the booking earnings depending on the extent of the cohosting role.
Specific expenses:
Internet and telephone Motor vehicle – visiting listed properties, picking up guests from airport or transit station. As the AIRBNB Host is conducting a business enterprise the travel claim is not affected by the changes from 1 July 2017 relating to travel for a rental property.
AIRBNB Experience Host
Income can also be earned through AIRBNB as an experience host. The activity must meet the quality standards of AIRBNB and will be listed on the AIRBNB site.
Experiences include the following:
▪ Cooking classes, wine tasting ▪ Photography, pottery ▪ Guided walks, yoga, meditation ▪ Gardening ▪ Sports –bicycle riding, surfing, canoeing, rock climbing, snorkelling ▪ Song writing.
The group size and price are set by the individual host. The bookings are scheduled through the AIRBNB website.
Specific expenses:
Professional photography for listing on website, Internet and telephone, Depending on the activity undertaken there may be materials, equipment, printing, travel Motor vehicle-travel to venue or site, collecting guests from airport or transit station. As the AIRBNB Experience Host is conducting an enterprise the travel claim is not affected by the changes from 1 July 2017 relating to travel for a rental property.
If you want to read some more about AIRBNB tax implications here in Australia, read our blog post on this topic here.