Short-term rental properties, popularised by platforms like Airbnb, have become a lucrative option for many property investors in Australia. However, the tax treatment for income derived from these properties can be complex. All income from short-term rentals must be declared as assessable income on your tax return. This includes not only the nightly fees but also any cleaning or booking fees charged to guests.
Under the ATO's guidelines, you can claim deductions for expenses related to earning this income. These might include advertising, cleaning, management fees, and utilities. However, only the portion of these costs that relates to the rental activity is deductible. For example, if you rent out a room in your home, you can only claim a portion of your home expenses, such as mortgage interest, council rates, and insurance.
A common misconception is that all costs associated with the property are deductible. In reality, you must apportion expenses between personal use and rental use. If you use the property for personal purposes during the year, you must adjust your deductions accordingly. Additionally, short-term rental properties may affect your capital gains tax (CGT) liability. If the property was your main residence, using it as a rental could impact the CGT main residence exemption.
Take a practical example: Imagine you own a 3-bedroom house in Bondi, Sydney, which you rent out on a short-term basis for $300 per night. Over the year, you rent it for 100 nights, earning $30,000. Your expenses for these 100 nights include management fees of $3,000, cleaning costs of $1,500, and utilities of $500. You can claim these expenses against the rental income. Assuming a 37% marginal tax rate, your tax liability on the rental income would be reduced by $1,665 after claiming deductions.
In our experience reviewing thousands of properties across Australia, we often see investors underestimating the complexity of apportioning expenses between personal and rental use. Many fail to track expenses accurately, leading to missed deductions. Furthermore, investors frequently overlook the impact on CGT when converting a primary residence to a short-term rental, which can lead to unexpected tax bills.
The answer can differ depending on your situation. If you acquired the property before 9 May 2017, the rules about claiming depreciation on previously used plant and equipment don't apply. For properties used partly as a main residence, the CGT implications can be significant. Additionally, the tax treatment may vary if the property is owned by an SMSF or a company, as different rules around deductions and CGT apply.
Given these complexities, it's wise to seek professional advice. A Chartered Quantity Surveyor can help you maximise your deductions by ensuring all eligible expenses are claimed accurately. An accountant can assist in navigating the intricacies of CGT and income tax laws, ensuring compliance while minimising your tax liability.