Written by Lauren Gerassimou – Senior Tax & Business Advisor
It is no secret that Airbnb has become increasingly popular over the past few years.
For home owners, this has meant that it is now relatively simple to rent out a spare room in your main residence to increase household income. But what are the tax consequences of doing this both short and long term?
For starters, any income earned needs to be declared as income in your personal tax return. A proportion of property ownership costs (based on the percentage of the area of the home that is available for rent) such as mortgage interest, council rates, energy costs etc along with depreciation on fixtures and fittings in the rented room can be claimed as a deduction against the income earned. Overall, the deductions may substantially reduce the income declared so in the short term renting out your spare room on Airbnb may result in a short-term benefit. However it is important to also consider the longer term tax consequences.
In the longer term, Capital Gains Tax (CGT) may apply when the property is sold. As your main residence has now been used for an income producing purpose, the main residence exemption for CGT purposes does not apply to the portion of the home that has been rented. The 50% general discount will apply to reduce the capital gain, however the amount subject to CGT could still be significant where prices have sky-rocketed over the past few years.
It is also important to be aware that the ATO is keen to tax Airbnb income and are conducting data matching activities. The ATO will not accept an attitude of “I didn’t know” when it comes to declaring Airbnb rental income and Capital Gains and will issue fines and penalties to those who do not comply.
Speak to our Tax Team for further information.