As the holiday season approaches, many homeowners may consider renting out their homes or a part of them to earn extra income, particularly in areas with high tourist traffic.
Platforms like Airbnb or Stayz make it easy to list your property or part of your property and connect with travellers. However, before you enter the sharing economy in any form, you should consider some important tax considerations.
Income and deductions: keeping track of earnings
When you rent out all or part of your home, any income you earn must be declared in your income tax return. It is essential to keep accurate records of all the money you make through these platforms. This includes rent payments and additional charges for cleaning or providing breakfast. Conversely, you may also claim deductions for certain expenses related to renting out your home.
These may include:
- Mortgage interest: If you’re still paying off your home, the interest on your mortgage may be deductible.
- Property maintenance: Costs for cleaning, repairs, and general upkeep of the rental space.
- Utilities: If your utility bills, such as electricity, gas, and water, relate to the rented space, a portion may be deductible.
- Depreciation: You may be able to claim depreciation on furniture and appliances used in the rental.
Make sure to keep detailed records of these expenses, as they can help reduce your taxable income. If in doubt, speak with your registered tax agent to double-check what may apply to your circumstances.
GST and renting out residential property
One question that often arises is whether you need to pay Goods and Services Tax (GST) on the income you earn from renting out your home. The good news is that GST does not apply to residential rent. This means that even though you’re earning money through platforms like Airbnb, you don’t need to worry about adding GST to your rental charges or reporting it in your BAS (Business Activity Statement).
However, different rules apply when renting commercial residential premises, such as a boarding house. In that case, you would have specific income tax and GST obligations. But GST won’t be a concern for most people simply renting out their home or a room within it.
A warning – capital gains tax
Now that you have started renting out part or all of your main residence, it is also now subject to Capital Gains Tax when you sell it.
You must also obtain a valuation from the day it started earning rent.
It is very important that you first talk to us to understand what this means to you going forward, including just how much tax you will need to pay and what the record-keeping requirements are.
What about additional services?
You might consider offering additional services to make your listing more attractive, such as breakfast, laundry services, or cleaning during a guest’s stay. While these extras can enhance the guest experience, they don’t necessarily mean you’re running a business or providing a “board.”
In most cases, you’re still simply renting out your space even with these additional services. It’s rare for renting out a home to be considered a business, so your tax obligations will remain focused on reporting rental income and claiming related deductions.
The holiday season is a great time to take advantage of the sharing economy by renting out your home or a part of it. By understanding your tax obligations and keeping good records, you can enjoy the extra income without any surprises.
Whether you’re renting out a room or your entire home, staying informed about what you need to declare and what you can deduct will ensure you’re fully prepared when tax time comes around.
So, as you prepare your home for (paying) holiday guests, remember to keep track of your earnings and expenses. With the right approach, you can make the most of the holiday season and enjoy the benefits of being part of the sharing economy.
At Walshs, we understand the complexities that can arise when renting out your home or part of it during the holiday season. Our experienced financial planners and accountants are here to guide you through the tax implications and help you maximise the benefits while staying compliant. From tracking income and deductions to understanding capital gains tax considerations, we’ll work with you to tailor advice to your unique circumstances.
If you’re considering renting out your property or have questions about your tax obligations, don’t hesitate to reach out to us. Contact Walshs at enquiries@walshs.com.au to discuss your situation and ensure you’re well-prepared to enjoy the financial rewards of the sharing economy with peace of mind.
Bailey Coghill | Walshs Accountant
