Air BNB Tax & Deductions

Are you leveraging your home as an Air BNB to rent out a space for additional income, or considering it to offset the rising interest expenses following recent Reserve Bank adjustments? If so, it’s crucial to be aware of your tax responsibilities and the potential deductions available for your incurred expenses. Our series has extensively covered Airbnb and short-term rentals. In this piece, we’ll delve into strategies for maximising your tax savings through rightful deductions and highlight the tax implications triggered by Airbnb hosting.

Many hosts unknowingly leave a significant amount of money on the table come tax season by not maximising their tax deductions. This oversight is similar to letting hard-earned dollars slip through your fingers. Every coffee pod you provide, every utility bill that climbs, and even the wear and tear on your furniture could potentially count towards deductible expenses. Yet, without a clear understanding of what’s claimable, many miss out on these opportunities, resulting in a higher tax bill than necessary. It’s a common pitfall that can transform what should be a profitable venture into a financial strain, emphasising the importance of not just earning, but earning smart by navigating the tax landscape with savvy.

Is Air BNB Hosting Considered a Business?  

Engaging in Airbnb hosting by renting out one or two properties on the platform classifies you more as a residential property investor rather than a business owner, despite the income generated from short-term rentals. The distinction lies in the scale and nature of your activities; simply hosting guests through Airbnb does not equate to running a full-fledged business. Consequently, the intricate web of business taxation rules does not apply in your scenario, simplifying your tax obligations and focusing them more on property investment principles.

Do I pay GST for my Air BNB Property? 

The goods and services tax (GST) does not apply to residential rents, so Airbnb hosts do not have to pay it. This also means that you can’t get a GST credit for the costs that go along with it. This is applied even if your sales are more than $75,000, which is the GST threshold.

For GST and Taxation Purposes, Are Air bnb Properties Classified as Residential or Commercial?

According to GSTR 2012/6 Airbnb doesn’t fall under commercial residential premises. The definition of ‘commercial residential premises’ in section 195-1 includes the following seven paragraphs, none of which indicate anything similar to Airbnb. This distinction is crucial for understanding the regulatory and tax implications associated with offering or operating Airbnb properties.

1. a hotel, motel, inn, hostel or boarding house. 
2. premises used to provide accommodation in connection with a school. 
3. a ship that is mainly let out on hire in the ordinary course of a business of letting ships out on hire. 
4. a ship that is mainly used for entertainment or transport in the ordinary course of a business of providing ships for entertainment or transport. 
   • a marina at which one or more of the berths are occupied, or are to be occupied, by ships used as residences. 
5. a caravan park or a camping ground; or 
6. anything similar to residential premises described in paragraphs (1) to (5)

Expenses You Are Entitles to Claim Tax Deductions

You’re entitled to deductions for specific costs associated with your property during the time it’s rented out or legitimately on offer for rent. The Australian Taxation Office (ATO) permits deductions for all expenses directly related to generating your rental income. In cases where the entire property is leased, you can typically deduct all associated operational costs. However, if you’re renting out a portion of your residence, you’ll need to allocate these expenses proportionally.

Airbnb rental expenses fall into three distinct categories, based on the deductibility:

1. Expenses for which deductions are not allowable.
2. Expenses that qualify for immediate deductions in the income year they are incurred.
3. Expenses eligible for deductions spread over several income years.

We will explore each of these categories in the sections that follow.

Expenses for which you cannot claim deductions

Some of the common expenses that are not tax deductible – 

1. Expenses you incur for your own usage when the property is rented or partially rented.  
2. Expenses for rental seminars even about helping you find a short-term or Airbnb to invest in.
3. Travel expenses to inspect a property before you buy it and, in certain circumstances, when you own the property.
4. From 01 July 2017, you cannot claim depreciation for second hand assets 

Expenses That Qualify Immediate Deduction

Diving into the world of tax deductions for your Air BNB can really make a difference in your wallet. There’s a whole bunch of costs that come with renting out your place, but the good news is, some of these can be deducted right away, within the same year you spend the money. Recognising these expenses can help optimise your tax position and ensure you’re not missing out on valuable savings. Below is a comprehensive list of expenses that typically qualify for immediate deduction:

• Advertising for tenants
• Airbnb fees 
• Software and/or online travel agency fees
• Bank charges.
• Body corporate fees and charges*
• Cleaning services
• Cleaning Supplies 
• Local council rates
• Water charges 
• Electricity and gas, including annual power guarantee fees.
• Gardening and lawn mowing services.
• In-house audio and video service charges
• Insurance, encompassing:
  • Building insurance
  • Contents insurance
  • Public liability insurance
  • Loss of rent insurance
• Interest on loans
• Land tax.
• Lease document expenses, covering:
  • Preparation
  • Registration
  • Stamp duty.
• Legal expenses* (excluding acquisition costs and borrowing costs)
• Mortgage discharge expenses.
• Pest control services
• Property agent’s fees and commissions, including services rendered prior to the property being available for rent.
• Quantity surveyor’s fees
• repairs and maintenance*
  – cost of a defective building works report in connection to repairs and maintenance conducted
• secretarial and bookkeeping fees
• security patrol fees
• servicing costs, for example, servicing a water heater.
• stationery and postage
• telephone calls and rental.
• Tax-related expenses. 

Source – ATO

What expenses can you claim before an Airbnb property is officially listed and available for rent?

You are eligible to deduct expenses including interest on loans, local council, water and sewerage rates, land taxes, and emergency services levies incurred during the period of renovating an Airbnb property intended for rental. It’s important to note, however, that your eligibility for these deductions ceases once your intentions for the property change, such as deciding to use it for personal purposes instead.

For example, if you were renovating a property with the plan to list it on Airbnb, you could claim the associated expenses as deductions during the renovation phase and any period it was marketed for rent. But if halfway through the year you choose to move in or use it as a holiday home for your family, you would no longer be able to claim these expenses from the point your intention.

Expenses eligible for deductions spread over several income years.

There are 3 types of expenses you may incur for your rental property that may be claimed over several income years:

1. Borrowing Expenses: These include costs like loan establishment fees, title search fees, and mortgage broker fees incurred when taking out a loan for your rental property. If the expenses exceed $100, they’re spread over the lesser of 5 years or the loan term. If they’re $100 or less, they’re fully deductible in the year incurred. Early loan repayment allows for immediate deduction of the remaining borrowing expenses.

2. Depreciating Assets: This covers the reduction in value of items like air conditioners or stoves in your rental property. The deduction is limited to the asset’s use for income-producing purposes and is adjusted for any personal use. Note that from July 1, 2017, restrictions apply to deductions for second-hand assets in residential rental properties.
3. Capital Works Deductions: This relates to construction costs for buildings, extensions, or structural improvements like fences or driveways. These deductions are usually spread over 25 or 40 years. You can only claim these deductions when the property is available for rent or actually rented, and the total deductions cannot exceed the construction costs.

In conclusion, navigating the tax landscape as an Airbnb host can be as challenging as it is rewarding. With the myriad of potential deductions, tax obligations, and ever-evolving regulations, it’s essential to approach your Airbnb venture with as much knowledge and preparation as possible. Remember, understanding the tax implications and leveraging the available deductions can significantly impact your profitability and compliance.

However, given the complexity and nuances of tax laws related to short-term rentals, it’s prudent to seek expert advice tailored to your unique situation. This is where Investax comes in. As specialists in Airbnb property and short-term rental taxation, Investax tax accountants are equipped with the expertise and experience to ensure you’re maximizing your tax benefits while adhering to all regulatory requirements.

So, if the thought of crunching numbers and combing through tax laws makes you want to run for the hills, why not let Investax take the wheel? Reach out to us and take the first step towards making your Airbnb journey as smooth and profitable as possible.

We offer a 15-minute free consultation to discuss your tax, property investment and business needs. Book your complimentary consultation now.

Book Now

General Advice Warning

The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation, and particular needs.

Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives, and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.

Although every effort has been made to verify the accuracy of the information contained on this page and on this website, Invetax its officers, representatives, employees, and agents disclaim all liability [except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this website or any loss or damage suffered by any person directly or indirectly through relying on this information.

Reference

https://www.ato.gov.au/forms-and-instructions/rental-properties-2023/rental-expenses

https://iorder.com.au/publication/Download.aspx?ProdID=1729-6.2023