Letting your apartment through Airbnb? The ATO is watching

It seems like an easy way to make a couple of extra bucks doesn’t it? List your apartment on Airbnb and generate some extra income when you can. Effectively pick and choose paying visitors for when you won’t be home.

Problem is, technically the income you are generating is accessible income and therefore taxable. When you rent out your apartment through a service or platform such as Airbnb, you need to report the income you generate. So the Australian Tax Office wants to know about it. Up until now that has been a pretty hard thing for them to find out about (unless you tell them!) but that is now changing. Airbnb have agreed to share their database of properties and their owners with the ATO, meaning that potentially thousands of owners are now going to be hit with “please explain“s from the ATO.

In an email to their database, Airbnb this week announced, “Airbnb is currently under legal notice by the Australian Taxation Office to share information concerning your hosting activity from the period from 1 January to 30 June 2019.” Information regarding income received per listing, as well as “listing dates, enquiry and booking rates, prices charged or quoted per night and other information” will be made available to the ATO, according to an ATO spokesperson.

An ATO spokesperson further relayed to us that “[they] launched an extensive data-matching program in August 2018 to identify taxpayers receiving income from short term rentals. Information from online platform sharing sites for around 190,000 Australians will be examined to identify taxpayers who have left out rental income and over-claimed deductions”. If you want to know more about this program, you can read about it here.

So what are the tax implications of renting your apartment or property part time through Airbnb or other online platforms? We are not accountants, so please speak to your accountant for actual taxation advice that you can rely upon, but you will have tax to pay on your accessible income (the income you generate, eg. rent) and also on any capital gain you make when you sell the (investment) property.

The last one is also a little doozie that many people are not aware of. A home, your principal place of residence in tax terms, is exempt from capital gains tax when you sell it. You can find out more about this on the ATO’s website here. So if you buy a property for $500,000 and then sell it for $600,000, the $100,000 capital gain is tax free. But as you probably already know, capital gains tax is payable when you sell an investment property. Here is another good overview page on the ATO’s website which will help explain how CGT is calculated.

The issue with capital gains tax arises in the instance of Airbnb letting, or any form of rental of your home, in that it pollutes your purpose for ownership. Instead of being able to say to the ATO that your home is solely used as your principal place of residence, technically it is now used as your principal place of residence AND for generating rental income at times. The ATO is going to want to charge CGT for a % of the gain on the sale of the property as so much of the total ownership of the property was used for income generation. So, in simple terms, if you owned a property for 100 weeks, you let it out through Airbnb for 10 weeks of that time, the ATO would expect to charge capital gains tax on 10% of the capital gain (i.e 10/100 = 10%).

The good news is that you can also offset a portion of your expenses (rates, maintenance) and a percentage of capital improvements against the capital gain. Hopefully, you have remembered to keep all your documentation so you can do this! This we fear may be the problem now for many owners who have inadvertently made their principal place of residence at least a part income-producing asset. The process to go back and create the paperwork trail that the ATO is going to insist on is going to be tiresome to say the least.

Remember you can not rely upon this as taxation advice so please speak to your accountant. We recommend getting your house in order, so to speak, as the tax man may just come knocking.

Written: 16 October 2019, Updated: 18 October 2019

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