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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Property investors prompted that the tax return deadline is looming

BMT team — Fri, 26 Oct 2018 05:40:16 +0000

While depreciation deductions provide a valuable opportunity for property investors to maximise their cash flow, this could be reduced if you fail to lodge your tax return on time and don’t seek expert advice. A key deadline if you are planning to lodge your 2017/2018 tax return online as a self-assessed claim without the help of an Accountant is the 31st of October. However, by lodging your return online, you could be at risk of missing out on valuable deductions or even put yourself at risk of an Australian Taxation Office (ATO) audit. Property depreciation is a genuine tax deduction that property investors can claim against their income, yet annually, countless Australians miss out on property depreciation. Unlike most tax deductions, property depreciation is a ‘non-cash expense’, meaning you don’t actually need to splash out the cash every year in order to make a claim. However, you do need a valid tax depreciation schedule, which is 100 per cent tax deductible. If you’re preparing your tax return and own an investment property, it’s important to contact a specialist Quantity Surveyor and obtain a comprehensive tax depreciation schedule. Quantity Surveyors are recognised by the ATO as one of a few professionals with the necessary knowledge to calculate construction costs for depreciation purposes. Together with your Accountant, they can provide guidance to steer you on the right path to ensure your claim is correct and you receive the best possible deductions. This also means you’ll have the adequate evidence necessary should the ATO question any of your claims. Legislation changes for property investors As part of the 9th of May 2017 federal budget, the Australian Government proposed changes to rental property depreciation deductions. This has caused some confusion amongst property investors in regard to what can be claimed. It’s important to remember that the change in legislation only affects second hand residential properties. The good news is there has been no change to legislation for capital works (division 43) assets. This means investors can still claim deductions for the irremovable structural elements of a building such as ceilings, foundations, walls, swimming pools, windows and toilets. The changes only apply to plant and equipment (division 40) assets, which includes assets that are not part of the properties structure such as carpets, ovens, dishwashers, blinds and smoke alarms. To read more about the new depreciation legislation and how this applies to a range of property investment scenarios, download BMT Tax Depreciation’s comprehensive white paper document Essential facts: 2017 Budget changes and property depreciation. Self-assessed vs expert assessed schedule It is not uncommon for a property investor to self-assess or estimate costs for their investment property, based on their own judgement, potentially missing out on significant depreciation deductions. A depreciation schedule prepared by a qualified Quantity Surveyor will ensure all depreciation claims are maximised within ATO legislation and that no depreciable assets are overlooked. Following is a real example of a client’s self-assessed depreciation deductions compared to the depreciation deductions identified by a BMT Tax Depreciation expert for an investment property. Example: The client purchased a brand new three bedroom house in an outer Sydney suburb for $689,000. *The depreciation deductions within the example have been calculated using the diminishing value method. In the first full year BMT identified an extra $7,402 in depreciation deductions and an extra $29,612 in deductions in the first five years. When completing a depreciation schedule, BMT Tax Depreciation will inspect the property to ensure no items are missed. The completed schedule can then be shared with your tax agent. For more information on property depreciation and what deductions you can claim from your investment property, visit the residential property depreciation page on the BMT Tax Depreciation website. Alternatively, you can contact the expert team at BMT on 1300 728 726 for obligation free advice.

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

Property investors prompted that the tax return deadline is looming