Airbnb – Renting part of the home – How to Declare Income and Expenses

Airbnb and the like -

There is estimated to be 115,000 properties listed across Australia in 800 towns and cities, generating $441 million in rental income in 2015/16 by 2.1 million people, averaging $119 a night, according to report by Deloitte Access Economics which was commission by Airbnb.

So how do Airbnb host report income and expense to the ATO?

— renting out part of your home - What are the tax issues to consider?

— ATO at some stage may come knocking so ensure all income and allowable deductions are claimed!

Airbnb Logo

Airbnb, the room-sharing startup based in San Francisco, unveiled a new corporate logo on Wednesday (July 16, 2014) called "the Belo," as part of a rebranding campaign. http://blog.airbnb.com/belong-anywhere/

Example of a Couple becoming an Airbnb host to rent out a spare bedroom to help cover costs

A couple purchased a two bedroom townhouse in an inner city suburb of Sydney in June 2008 for $726,000. Stamp duty of $28,160 was paid on the initial purchase, with additional costs of $1,500. Their intention at the time of the purchase was for this property to be their principal place of residence. After residing in the property for three years, they decided to make the spare bedroom available for nightly or short-term rental via a popular internet-based service, similar to airbnb. Rental income was first received on 15 October 2012.

The couple continued to make the property available throughout the next two and a half years after which time they sold the property. The last day of rental income occurred on 29 June 2015.

The property sold for $1.1m on 22 December 2015, with an agent’s commission for the sale of $16,500 inclusive of GST.

What are the tax consequences for the Airbnb hosts for using their home to produce part-time rental income.

Income

Rental income under a lease and hiring charges are assessable as ordinary income (ITAA 1997 s 6-5).

GST

There is no GST liability as the provision of residential accommodation is input taxed and the property is used predominantly for private purposes (A New Tax System (Goods and Services Tax) Act 1999 s 40-35).

Capital gains

As part of the property was used to produce assessable income for part of the ownership period, only a partial main residence CGT exemption applies, even though the property was the main residence of the couple throughout the entire ownership period (ITAA 1997 note 1 of s 118-110; 118-190).

Deductions

As part of the property was used to produce rental income, expenses relating to the income are allowable as a deduction (ITAA 1997 s 8-1). However, as the property was not rented out fully (ie only one room and some shared facilities), some deductions are only partially allowed. Overhead property expenses must be calculated on a proportional basis — using the number of days the property was rented out and the proportion of the floor area that is rented (and shared).

Floor area details of the property are as follows:

Room

Floor area

Deductible floor area

Fully rented out areas:

Bedroom 2

9.57 m2

Sub-total

9.57 m2

9.57 m2

Shared occupancy areas (split between three people when rented):

Living room

12.92 m2

Dining room

12.16 m2

Kitchen and laundry

12.00 m2

Sub-total

37.08 m2

37.08 / 3 = 12.36 m2

Areas not rented:

Bedroom 1

12.92 m2

Outdoor/courtyard

25.00 m2

Sub-total

37.92 m2

0.00 m2

Total floor area

84.57 m2

21.93 m2

Total occupancy percentage: (21.93/84.57)

25.93%

On a night when a tenant stayed in the property, the deductible costs for occupancy include 100% of the “fully rented out” area and one-third of the “shared occupancy” area. No deduction is available for other areas.

The occupancy costs are deductible at a rate of 25.93% for each night a tenant stays at the property.

There is no car space and storage areas are not included.

During the time the property was rented there were three occupants of the property, being the couple who owned the property and an individual person who rented bedroom 2. The property was never available to rent for more than one person at time.

Deductions relating to the actual rental of the room, such as the host fees paid to the web-based service and any consumables supplied for the room, are fully deductible to the extent that they are used for producing assessable income. No new furniture and fittings were purchased for bedroom 2 during the time the property was rented. Any decline in value for existing furniture and fittings is partially deductible for the period the property was rented.

Occupancy costs, such as mortgage interest, municipal rates, strata levies and home insurance premiums are relevant and incidental to the derivation of rental income. As occupancy costs relate to a property as a whole, they must be apportioned between the income-producing purpose and the private purpose.

The property was rented out on 45 days during the 2012/13 income year, 62 days in the 2013/14 income year and 48 days in the 2014/15 income year, at a cost of $140 per night.

The calculations of the taxable income is as follows:

        

 2012/13

                

      2013/14                         

                            2014/15

Occupancy %

25.93%

25.93%

25.93%

Days rented

45

62

48

Deductible %

3.20%

4.40%

3.41%

Total

Taxable

Total

Taxable

Total

Taxable

Income:

Rent

6,300.00

6,300.00

8,680.00

8,680.00

6,720.00

6,720.00

Expenses

Rented room:

Website fees

189.00

189.00

260.40

260.40

201.60

201.60

Cleaning

0.00

0.00

50.00

50.00

0.00

0.00

Repairs and consumables

100.00

100.00

60.00

60.00

40.00

40.00

Occupancy costs:

Body corporate

7,200.00

230.18

7,450.00

328.15

7,600.00

259.17

Council rates

1,200.00

38.36

1,260.00

55.50

1,275.00

43.48

Insurance

720.00

23.02

760.00

33.48

790.00

26.94

Interest

29,066.00

929.24

28,652.00

1,262.05

27,984.00

954.29

Repairs

350.00

11.19

300.00

13.21

250.00

8.53

Water fees

450.00

14.39

460.00

20.26

465.00

15.86

Total expenses

 

1,535.38

 

2,083.05

1,549.86 

Net rent income

4,764.62

6,596.95

5,170.14

The additional income over the three years amounts to $16,531.71, which at the top marginal rate of tax would result in a liability of $7,816.50 over the three years.

Capital gains tax

As the property was initially used solely as there private home, for capital gains tax purposes it has a cost base equal to the market value of the property on the date it first earned rental income (ITAA 1997 s 118-192). The property was valued in October 2012 at $900,000.

The income-producing period of the property was 15 October 2012 to 29 June 2015, a total of 988 days. As the property was rented for 155 days during the income-producing period and only 25.93% of the property was income-producing, a partial gain of 4.07% is assessable in the 2015/16 income year.

The calculation of the capital gain is as follows:

Item

Amount

Sale price

$1,100,000

Less:

Cost (2012 valuation)

900,000

Commission on sale

16,500

Gross capital gain

183,500

Multiplied by assessable percentages:

Occupancy — percentage of floor area (21.93 m2/84.57 m2)

25.93%

Amount of time property was income-producing (155 days/988 days)

15.69%

Assessable percentage of gain (25.93% × 15.69%)

4.07%

Assessable gain ($183,500 × 4.07%)

$7,468

Less: 50% general discount

$3,734

Net capital gain

$3,734

Last reviewed: 5th November 2017

If you have or are considering becoming an Airbnb host or have a spare bedroom rented either short term or to a boarder, and would like further information, please contact our office.
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