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Investing in Airbnb property

BMT team — Wed, 15 Mar 2023 23:04:00 +0000

Australia’s pristine beaches, picturesque landscapes and impressive flora and fauna are just some of the reasons people consider it one of the world’s best places to live and visit. Investing in Airbnb property has become an increasingly popular option. With over 100,000 Airbnb listings and thousands more across other short-stay accommodation sites, holiday rentals are taking the country by storm. Holiday rentals make for attractive investments; many locations are enticing year-round, they’re popular for both domestic and international travellers, and they hold lucrative tax depreciation deductions. Investing in Airbnb property or other holiday rentals is different to typical residential housing and often involves different customs and expectations for tenants and property owners In this article, we explore the following: What is short-stay accommodation and how does it work? Why invest in a holiday rental? Important things to keep in mind Depreciation eligibility How to maximise deductions What is short-stay accommodation and how does it work? Short-stay accommodation is typically self-contained apartments or houses which are rented for short periods and are available to be booked at short notice with no lease obligations. Most holiday rentals will have a per-night fee, although it’s not uncommon for these properties to also have leases available, more so recently due to historically low rental vacancies. Because leases aren’t used in short-stay accommodation, guests may be required to sign a contract or rental agreement depending on the duration of stay and the property owner’s preference. In most cases guests won’t be required to sign any type of contract – but may be asked to pay a deposit. In other cases, guests aren’t required to sign any type of agreement or contract. Why invest in a holiday rental? Holiday rentals generally offer more flexibility and may be the ideal choice for owners who also want to occupy their investment property occasionally. Holiday rentals generally yield higher daily or weekly rents than long-term leases due to price adjustments based on the duration of stay, maintenance requirements, number of guests, season and local events. Holiday rentals will receive more regular maintenance and cleaning which can improve the longevity of assets and reduce repairs and the need for improvements. Because these properties are income-producing, they generate significant tax deductions including depreciation. Costs such as advertising, repairs and maintenance, property management fees (including Airbnb fees), council rates, insurance costs, interest on investment loans and land tax are fully deductible for the periods the property is income-producing. Important things to keep in mind Holiday rentals are often managed by local property managers, however, in Airbnb properties, it’s a combination of professional and self-management. For instance, Airbnb manages bookings and provides host and guest assistance, however, everything else is ultimately the owner’s responsibility. Types of responsibilities can include finding staff to upkeep the property or doing it yourself, organising repairs and maintenance, being on call 24/7 in case of emergencies, preparing the property for the next tenant and some administrative duties. Because Airbnb properties and holiday rentals are often suitable for a specific cohort, there may be vacancies outside of peak periods, more so in areas with seasonal attractions such as snow or properties near the beach. While utility fees are generally covered by income, it’s important to be aware that these costs are the responsibility of the owner and don’t stop during vacant periods. Owners who occupy their holiday rental will not receive rental income and total tax deductions will be reduced to account for those periods. Some investors choose not to occupy their holiday rentals during peak times or stay when the property is vacant to avoid missing peak rental income. All rental properties require advertisement, however, because holiday homes are typically consistently advertised, these fees will be higher. On a positive note, all costs incurred to advertise an income-producing property are tax deductible. Depreciation eligibility Properties used to produce an income are eligible for depreciation deductions. Owners are eligible to claim depreciation deductions for qualifying assets under two groups. Capital works deductions (Division 43) are claimable on the property’s structure and permanently fixed assets, and plant and equipment depreciation (Division 40) is claimable on the easily removable or mechanical assets. Because holiday rentals are normally furnished by the owner, depreciation deductions are available for qualifying furnishings, which can boost yearly depreciation claims. There are partial year deductions available in scenarios where properties aren’t available for year-round deductions. For instance, when owners occupy their property for part of the year or if the property hasn’t been owned for a full tax year. This allows owners of investment properties to claim deductions for the times of the year the property is income-producing as a percentage. For example, if a property is occupied by a tenant 75 per cent of the year and owner-occupied for the remaining 25 per cent, then 75 per cent of the total yearly depreciation claim is claimable. How to maximise deductions The most effective way to maximise deductions is to order a tax depreciation schedule. A BMT Tax Depreciation Schedule is a detailed forty-year report illustrating all depreciable items in both categories. Whether a holiday rental is rented out 100 per cent of the time or 20 per cent of the year, investors should contact a specialist quantity surveyor to discuss the available depreciation deductions. BMT Tax Depreciation conduct site inspections nationwide to ensure schedules are maximised and fully compliant with current Australian Taxation Office rulings and regulations. To learn more about the deductions within your holiday rental Request a Quote or call the experts on 1300 728 726.

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Understand Airbnb income tax requirements and deductions to get the best return

BMT team — Mon, 03 Feb 2020 00:37:27 +0000

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. Sole Airbnb 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. Part Airbnb 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

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Streamlined rules for Airbnb in New South Wales

BMT team — Thu, 10 Nov 2016 04:10:26 +0000

The laws surrounding short lets in New South Wales are about to change and it is expected that unified legislation will make property sharing sites such as Airbnb and Stayz legal and much more common from next year. Considering how unclear legislation for short lets in New South Wales currently is, we thought we would explain the Airbnb situation in New South Wales at the moment, what the inquiry is about, the expected results from the inquiry and the pros and cons of short term accommodation in a sharing economy. What is Airbnb and how are people using it? Airbnb is a peer-to-peer online homestay network where ‘hosts’ rent their whole property or a spare room to those looking for short-term accommodation, often at a fraction of the cost of a hotel. The price per night is set by the owner and the company receives a booking fee from both the guest and the host. All transactions – including bookings, conversations between hosts and guests, and the processing of payments – occur online through the website or Airbnb app. First launching in 2008, Airbnb now has over two million listings in 34,000 cities and 191 countries and was recently valued at $30 billion, giving it a higher value than many leading global hoteliers. Headquartered in San Francisco it is privately owned and operated and also self-regulated. Airbnb first came to Australia in 2012. It now has more than 80,000 listings across the country with the majority of these located in New South Wales. In addition, approximately 20 per cent of Australian adults hold an Airbnb account. Airbnb hosts list their properties for a number of reasons, most related to the additional cash flow it provides them. They might put the funds towards a holiday or new car or, quite often, towards mortgage repayments. The latter is becoming more common as property prices continue to soar in our capital cities in particular. Others are using Airbnb as a new form of investment and don’t actually live at the property themselves. Instead of having occupants pop in every few weeks, they aim to have their property fully booked all year round. There are even agencies that facilitate this process by handing over the keys and cleaning the apartment afterwards so that the host never has to meet the guests in person. This form of ‘investing’ also allows the property owner to take advantage of nightly rates, which generally gives them greater returns than they would get from weekly rent on a traditional, long term lease. What are the current rules regarding short lets in New South Wales? At present the legality of short term lets in New South Wales is not clearly defined. Different council areas have different rules, making things such as Stayz and Airbnb a very grey area, with many hosts not realising they are actually letting their home out illegally. Currently only twelve New South Wales council areas have rules allowing for homeowners to lease out spare rooms or full properties on sites like Airbnb. In some council areas it is welcomed and in others it’s illegal, but in most cases, people are uncertain what the rules actually are. Despite the majority of areas not allowing for short lets, there is still a high number of listings in these areas. Aside from this confusion, what is drawing a lot of criticism is that quite a lot of listings are for whole properties without an owner present, often fully booked with a constant rotation of guests. In Sydney, around 60 per cent of listings are for entire homes. Many opposed to these short lets – particularly hoteliers and traditional bed and breakfast operators – say these owners are operating their homes as a commercial business as opposed to a residence, and without the appropriate permits and commercial licence to do so. But it is likely this is all about to change and become legal as a result of a New South Wales parliamentary inquiry. What is the inquiry into short lets and what are its recommendations? In response to this lack of clear legislation on short lets and the recent growth of Airbnb, there has been a parliamentary inquiry into the short term accommodation market in New South Wales. Eighteen months in the making, the Legislative Assembly’s Inquiry Adequacy of the Regulation of Short-term Holiday Letting was tabled in parliament on the 19th of October this year with some clear recommendations. The recommendations were based on the conclusion that the sharing economy is an essential and growing part of our society today and that it should be allowed to thrive given appropriate safety and occupancy controls. First and foremost, it called for a clear set of laws in New South Wales to regulate this industry. It also recommended owners should legally be allowed to make their whole properties or spare rooms available on short term lets as a blanket rule, with no limit on the maximum number of nights they can rent it out for. Pros of legalising short lets The first drawcard of legalised short lets is that it provides more budget accommodation options for travellers. It also offers more flexibility for families or larger groups who want to stay together when travelling. In turn, this can help boost tourism in regions not typically considered tourist areas by offering unique local experiences and more accommodation options for those who may not be able to afford traditional hotel accommodation. Some argue that this boost in tourism will increase spending in our economy. A benefit for Airbnb hosts or those thinking of opening up their homes to short lets is that it helps them save money or pay off a mortgage in a market that’s becoming increasingly expensive, where housing affordability is proving an ongoing concern. Cons The major concerns about legalising short lets in New South Wales relate to the impact it will have on neighbours, strata dwellings and the traditional traveller accommodation industry. First of all, there are concerns that […]

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