Over the past decade, short-stay accommodation sites such as Airbnb and Stayz have skyrocketed in popularity, prompting investors to consider the potential benefits of advertising their own property or room on a like-minded site. However, we here at Francis A Jones recommend that potential investors consider the tax consequences of short stay accommodations before doing so.
Similar to a residential or commercial rental property, an owner of a property rented out for short-stay accommodation must declare any rental income they have received in their tax return. They are also entitled to claim a deduction for expenses such as council rates, water rates, land tax, interest on investment loans, depreciation and capital allowances, to name a few.
Unlike a standard rental property, short-stay accommodation properties are sometimes used for private purposes. In this instance the owner must apportion the expenses to only claim the part that relates to income-producing activities. This is usually based on the number of days the property was available for rent during the year. For example, if a property is available for rent for 80% of the year, you can generally claim 80% of the total expenses incurred as a deduction. However, it’s important to note that expenses related entirely to the income, such as service fees and commission charged by short-stay accommodation sites are fully deductible. Further, the private portion of the expenses should not be overlooked, since these ‘holding costs’ can potentially be added to the cost base of the property, thereby reducing capital gains tax (CGT) owed when the property is sold by the investor.
Another common occurrence for holiday home owners is to rent the property to family and friends below market rates. The Australian Taxation Office (ATO) states, “If your holiday home is rented out to family, relatives or friends below market rates, your deductions for that period are limited to the amount of rent received”. This means you cannot claim a loss for the period you rented the property for below market rates, you can only breakeven. In comparison, if the property is occupied at no cost, it is considered to be 100% private and no deductions can be claimed. For more information and examples please refer to the ATO webpage https://www.ato.gov.au/Individuals/Investments-and-assets/Holiday-homes/.
Finally, it is worth mentioning if you are planning on renting out a room of your primary residence on a short-stay accommodation site, you will no longer be eligible for the full CGT main residence exemption which means when you sell your home, part of the sale will be subject to capital gains tax. For more information on the eligibility of the CGT main residence exemption please refer to the linked ATO webpage, https://www.ato.gov.au/Individuals/Capital-gains-tax/Property-and-capital-gains-tax/Your-main-residence-(home)/Using-your-home-for-rental-or-business/.
Other related blogs:
Holding costs and the impact on capital gains tax
Author: Amy Murphy
Email: amy@faj.com.au
