Millions of travellers use Airbnb every year. However, many hosts fail to take full advantage of the depreciation deductions available on their Airbnb investment. By tracking expenses and claiming depreciation, you will make sure your Airbnb is as profitable as it can be.
In this article we will explore:
- What is Airbnb?
- Advantages of Airbnb hosting
- Disadvantages of Airbnb hosting
- Do you have to pay taxes on Airbnb income?
- Scenarios of claiming depreciation on an Airbnb investment
- Sole Airbnb
- Part Airbnb
What is Airbnb?
From city apartments to luxury camping, Airbnb provides unique short-term accommodation for travellers and an easy way for hosts to make extra income. The share economy is booming in Australia with Airbnb fast becoming a fierce competitor to the hotel industry.
Advantages of Airbnb hosting
Providing a flexible option for investors, Airbnb allows hosts to control pricing and timeframes throughout the year. Unlike long-term rentals, you can take advantage of peak holiday times by adjusting the rental prices charged.
Disadvantages of Airbnb hosting
A hotel and an Airbnb operate very similarly, with a high turnover of guests in short periods. Managing the upkeep and cleaning demand of your Airbnb is key to its success.
High guest volumes also increase the chance of property damage. Having the right insurance, clear property rules and a security deposit are just some ways of making sure you’re covered for any unexpected surprises.
Do you have to pay taxes on Airbnb income?
An Airbnb falls under the same tax reporting requirements as any income-producing investment property. When you rent out part or all your property as an Airbnb, you:
- need to keep records of all income earned and declare it in your income tax return to the Australian Taxation Office by the required deadlines
- don’t need to pay GST on amounts of residential rent you earn
- need to keep records of expenses you can claim as deductions.
When you sell your investment property, you need to pay Capital Gains Tax (CGT) on the profit made from the sale. Your main residence is generally exempt from CGT. However, if you decide to rent out part of your home as an Airbnb, you’re no longer eligible for the full CGT exemption. This is due to the home being part income producing, CGT is then applied on a percentage basis, commonly based on floor area.
Scenarios of claiming depreciation on an Airbnb investment
Claiming depreciation on any Airbnb property will make it more profitable. Methods of calculating tax deprecation deductions are significantly different between a sole Airbnb and part Airbnb property.
You can claim full depreciation deductions on a sole Airbnb for the period it was genuinely available for rent.
If you decide to use your own Airbnb for a holiday, can you still claim depreciation? If you stay in your Airbnb for any period, all tax depreciation deductions must be distributed to the time the property was only used for income-producing purposes.
If you only renting out part of your home as an Airbnb, your home becomes a part private and part income-producing dwelling. Many hosts are unaware that they can still claim depreciation on their part Airbnb on a pro-rata basis.
The pro-rata calculation is usually based on floor area. You’re also able to claim depreciation for the plant and equipment dedicated to the investment side of the property. It’s important to know that if you decided to rent out part of your main residence as an Airbnb after 1 July 2017, you’re not able to claim depreciation for pre-existing plant and equipment assets.
For assets purchased directly for the Airbnb, such as the bedroom furniture, you can benefit from the full tax deduction benefits for the asset’s effective life. Shared area assets, such as kitchen appliances, are only partially deductible and must be apportioned appropriately.
To find out more about how depreciation deductions can maximise the return on your Airbnb investment, request a quote or contact the specialist BMT Team on 1300 728 726