Summer is just around the corner, and with it comes the exciting prospect of a well-deserved holiday. Many of us are now busily making travel plans, and many property owners are planning for travellers!
Leasing a room or property through short-term rental services such as Airbnb is a great way to supplement your income, but the impact on your tax can be surprising. Here is some important advice that I share with clients who are considering Airbnb hosting for the first time.
Before you Begin
Just as with any other enterprise, proper bookkeeping is crucial. Prepare to keep a detailed record of how long the property has been rented, at what rate, and with what additional expenditures (if necessary). Be certain to save any receipts related to maintenance on the property. The Australian Tax Office (ATO) pays careful attention to your income declared, so ensure you do not miss anything!
If you are thinking of letting a room in a property that you yourself rent, discuss this with your landlord first and obtain their written permission. Though your guests’ stay is short, you are nevertheless offering them a sub-let agreement, which might, in turn, be subject to a larger tenancy agreement (thus, if you attempt to rent “under the radar,” you will place yourself at legal risk). Similarly, if you are renting in an apartment complex, ensure that you will not run afoul of Body Corporate rules.
Clarity is key: diligent note-taking will spare you many future headaches!
Things to Expect
Though renting your property through Airbnb is overall a great way to supplement your income, many hosts might feel initially underwhelmed by the profits. This is because come tax day, you will pay more due to your higher annual income. As a rule of thumb, I advise my clients to set 30-40% of their rental earnings aside for tax purposes. It pays, of course, to develop a detailed plan: make a booking with your friendly local Chan and Naylor accountant here to crunch the numbers specific to your case!
Additionally, Airbnb hosts who are considering selling their property may be surprised to learn that they may be subject to a substantial expense due to Capital Gains Tax (CGT). When a private home begins to generate income, the ATO adjusts the way it views the property: what would otherwise be a private asset may become taxable.
Though you will be subject to new and higher taxes, and your profits will likely be (at least, initially) less pronounced than you might have hoped, do not lose hope – there is still much to be gained!
In addition to the neat income you get to keep after tax, you become eligible for certain tax deductions. You will be able to claim expenses for a portion of the facilities that you provide to your tenant, including furniture; bills (internet, power, water, phone, etc.); renovations and repairs; and even a percentage of your mortgage interest repayments. To make these claims with the least amount of fuss, refer to the bookkeeping work you had completed earlier! Your record of tenant comings-and-goings, as well as your collection of receipts, will be immensely valuable.
Renting an Airbnb room is an excellent means of supplementing your income, but, as with any kind of business, extensive pre-planning is necessary to avoid the legal and financial risks. To develop your own business plan and to get ready for all Airbnb hosting entails, visit us at Chan & Naylor.
If you need assistance with bookkeeping or business tax accounting, contact a Chan & Naylor accountant in your area, and we’ll be more than happy to help.
Aside from our reliable accounting services for Airbnb hosts, have a look at our other accounting and advisory services that we do to help you achieve greater success.
Chan & Naylor Group has nationwide offices in North Sydney, South West Sydney, Sydney, Pymble and Parramatta in New South Wales, Melbourne, Moonee Ponds and Hawthorn in Victoria, Brisbane and Capalaba in Queensland, and East Perth in Western Australia that can assist you with bookkeeping, property and business tax accounting as well as any tax accounting enquiry that you may have. Contact us today.