Christmas is almost here and for Airbnb hosts this signals an opportunity to earn some extra cash. While online marketplaces like Airbnb may be a smart way to make use of idle assets, it’s important to know what this extra income means for your tax position.
Taxing sharing economy income
Australian income tax law does not contain any special rules that apply specifically to sharing economy participants. Individual participants must therefore apply the general income tax laws to their circumstances. This includes rules for allowable deductions as well as the tax treatment of assets used to produce income such as Capital Gains Tax (CGT).
While there are no special rules that apply to the sharing economy, most of the income from this activity is likely to be assessable income given that the activity is primarily undertaken to generate income (that is, it’s not a hobby). This is the case even when operating at a relatively small scale such as renting out a room in your house on an occasional basis.
Assessable income includes:
- earning short-term or long-term rent from a property or part of a property that you own or lease (such as your home or holiday home)
- income from sharing other forms of accommodation (such as a caravan)
Expenses you incur in gaining this assessable income (such as depreciation, operating costs, fees and commission charged by the facilitator) can be deducted from your assessable income. If you are only renting out part of the property (such as a room) you can only claim expenses relating to that part of the property. In addition, you can only claim expenses for the time the property or room was rented.
What about GST?
GST does not apply to residential rents so you’re not liable for GST on the rent you receive through an accommodation platform such as Airbnb or Stayz. You therefore won’t be able to claim GST credits for associated costs. This is the case even if your turnover exceeds the GST threshold of $75,000.
Note that hire income from a caravan or RV as well as rent received from commercial residential premises (such as bed and breakfast accommodation) is not residential rent and therefore may be subject to GST.
Will you be liable for CGT when you sell the property?
Usually when you sell your private residence the sale is exempt from CGT. However, if you have used the property for income earning activities, such as renting it out through Airbnb, you are no longer eligible for the full CGT exemption and part of any gain you make will be taxable. This is the case even if you’ve lived in the home as your main residence and have only rented out a small part of the home for a short period of time.
CGT on an income earning property will be calculated on a proportional basis. That is, it will be based on the portion of the property rented out, and the length of time it was rented out.
Calculating the amount of tax you will pay is complex and will depend on a range of factors. Professional tax advice should be obtained before income producing activity begins so you are well aware of any potential tax consequences.
Record keeping for sharing economy income
You should keep records of income and expenses regardless of how much you earn. This includes statements from facilitators showing income you’ve earned as well as receipts of any expenses you want to claim a deduction for. If you have rented out a portion of a residence, you will need to be able to show how you’ve apportioned expenses that are partially for private use.
For more information on the tax treatment of sharing economy income, or for assistance with your record keeping requirements, please contact our advisors on 07 3831 1055 or [email protected].
DISCLAIMER: The information on this website and the links provided are for general information only and should not be taken as constituting professional advice from Hall Browns Accountants. You should consider seeking the appropriate legal, financial, or taxation advice to check how the website information relates to your unique circumstances.