How do taxes work with Airbnb?
More and more individuals are renting out their houses as a result of the rise in popularity of holiday rental firms like Airbnb and others, and as a result, they are becoming familiar with a new set of tax difficulties that come along with it.
If you follow a few of these helpful tax tips when renting out your home or a room in your home on a short-term basis through a service like Airbnb, HomeAway, VRBO, FlipKey, or any of a number of other similar platforms, you will be able to reduce the amount of income tax you owe, and in some cases, you will even be able to avoid paying any income tax at all.
How does Airbnb affect your tax return?
Airbnb provides a wonderful opportunity to earn extra money by renting out a spare room without requiring a long-term commitment.
Alternatively, it is a convenient option to lease a vacation property that would be empty for the majority of the year.
Both of these things are wonderful, but some Airbnb hosts may not be aware of the repercussions and advantages that they may face when it comes time to file their taxes.
What income do you have to declare?
If you rent out all or part of your house to guests, the money you make from those rentals is considered taxable income.
This indicates that you are required to mention it on your tax return.
It is a good idea to keep accurate records throughout the year of both the income you receive from renting out your property and any expenses you spend in order to make filing your taxes less of a hassle.
Cloud-based accounting systems, such as QuickBooks Self-Employed, connect to your bank account from your mobile device and enable you to distinguish between your personal and professional expenditures.
Be truthful about the money you make from Airbnb.
If you earn money by renting out your house through Airbnb, it is imperative that you report the income from these rentals.
Make sure everything is in order before you declare it because the Australian Tax Office (ATO) will easily track this information and may even audit any claims made if there are doubts surrounding how much money has been received from rental fees or what type/what size of the dwelling, etc.
At the end of the year, a higher tax rate is often applied to supplemental income.
Keep in mind that setting aside some of the money you make through Airbnb is essential if you want to avoid unpleasant surprises and additional fees from the ATO when it comes time to file your taxes.
When it comes to Airbnb taxes, how much will you be expected to pay?
You should avoid missing out on prospective earnings as much as possible due to poor tax preparation because that is the last thing you want to do.
Your insurance agent will be able to assist you in determining how much money will be required in order for your income from your side business and other sources, such as retirement funds so that there are sufficient funds set aside each year when it comes to time chemistry!
Is income from Airbnb subject to taxation?
Yes, any money that you receive from renting out a property would normally be considered taxable income and must be reported on your tax return.
Remember that the ATO may already have facts about your Airbnb activity through the data collecting techniques it uses, so make sure you keep correct records and report everything. It is also essential to keep in mind that the ATO may already have details about your Airbnb activity.
“Re-renting” a house that was previously rented through Airbnb
Airbnb landlords who rent out their properties without authorisation are coming under increased scrutiny from the Victorian government, which is cracking down on the practise. If you want to share your home with another person, the conventional wisdom is that you should first obtain that person’s written permission.
Airbnb is a wonderful way to bring in some more cash on the side, but it is essential that you are aware of your legal rights, not only for landlords but also for tenants. Before you post an apartment on Airbnb or rent it out via the service, you need to make sure that all of these rules and regulations apply to your situation.
Checking with the landlord or the management firm is the most reliable approach to determine whether or not you can use Airbnb to rent out your property.
Don’t just brush this part of the strategy under the rug; in order for it to be successful, you will need to have an in-depth knowledge of the regulations that govern Body Corporate.
Are you able to claim expenses related to Airbnb, and what about the GST?
Airbnb is a model of success for the “sharing” economy.
The company’s website acts as a matchmaker between people looking for private accommodations and those looking to rent or vacation there. However, if you are the owner of the property, one of the most significant obstacles that this method of renting it out presents is the task of coming to terms with the financial commitments.
One unfortunate but all too often scenario is that a person hastily enters into an arrangement with Airbnb in order to make additional revenue quickly, but does so without giving any thought to the potential tax ramifications.
If you do this, you could be in for a rude awakening in the future when you find out that the ATO has taken an interest in what you have done.
Therefore, in order to assist you in avoiding any tragedies linked to taxes, here are five essential suggestions for all Airbnb hosts, whether they are now hosting or are considering hosting.
Do I have to get a GST registration and pay it every month?
That is very unlikely to be the case. Even if you make more than the GST threshold of $75,000 from the listing, you are not required to pay GST (Goods and Services Tax) because Airbnb rentals are regarded as residential properties by the Australian Taxation Office (ATO).
Should I also be concerned about paying the goods and services tax (GST) as well as the capital gains tax?
However, as you are exempt from charging or paying GST on residential rent you collect through property sharing, this also means that you are unable to claim GST credits for any expenditures involved with collecting that rent.
Keep in mind, too, that despite the fact that your primary residence is considered a personal asset, in most cases it is not subject to the Capital Gains Tax (CGT).
This can be different if you post a piece of it for rent on a platform that facilitates sharing, such as Airbnb.
Because of this, if you decide to sell the property in the future, you run the risk of having your CGT primary residence exemption reduced or eliminated entirely.
Utilizing the capital gains tax property exemption tool provided by the Australian Taxation Office (ATO), you are able to determine which percentage of your property is not subject to CGT.
Don’t forget the potential Capital Gains Tax (CGT)
When you sell an investment property, you will be subject to capital gains tax (CGT) based on the amount of profit you made from the sale of the property.
The easiest way to explain this profit is to think of it as the difference between the price at which you sold it and the price at which you purchased it.
It is simple to make big gains when selling real estate in recent years due to the quick increase in property prices. However, it is also simple to forget that the government will demand a portion of those profits to pay taxes.
CGT does not normally apply when an individual sells their own home, with the exception of situations in which a portion of the property was used for activities that generated income.
This includes renting it out through an online platform like Airbnb.
Calculating the capital gains tax could be difficult due to the fact that only a portion of the gain will be taxable, which makes it more difficult to determine how much tax must be paid.
Many hosts of Airbnb listings are caught off guard by this particular aspect because they are wholly oblivious to the CGT consequences of renting out a portion of their house.
CGT can be an expensive trap for individuals who haven’t incorporated it into their cost-benefit analysis when they first opted to take part of the property up for rent because of the possibly considerable time lag between commencing to rent out the property and ultimately selling it.
What kinds of costs are eligible for me to deduct from my income?
As a host on Airbnb, you are eligible to claim tax deductions for costs that are proportional to the amount of rental revenue you receive. Depending on the specifics of the situation, this may involve the following:
- Expenses associated with the deterioration of furniture, such as mattresses, couches, tables, desktops, and drawers
- Costs associated with professional cleaning of the rental space
- Maintenance and mending of things
- Provisions such as breakfast dishes, tea, coffee, and other beverages are made accessible to visitors staying at Airbnb
- Costs associated with hiring a professional photographer for your Airbnb listing
- Commissions and service fees charged by Airbnb
In most cases, if you rent out the entire property, you will be able to deduct all of the expenses that are associated with its operation from your taxes.
A certain amount of apportionment is required if you intend to rent out a piece of the property in which you are also residing. This indicates that you are only eligible to claim a proportionate share of the costs.
This is often determined by comparing the entire floor space of your property to the total floor space that is used for your Airbnb rental and working backwards from there.
If you were renting out a bedroom and allowing guests access to the kitchen and living space, for instance, the apportionment would take into account not only the total square footage of the guest’s room but also a reasonable proportion based on the fact that they had access to the common rooms.
You can gain an understanding of the different types of claims you can make by considering the following questions:
- Is there a direct correlation between the expense and the hired space? In that case, the total amount could be removed. It’s possible, for instance, that you’ll be able to deduct the cost of a bed or other pieces of furniture that are utilised in a bedroom that is set up expressly for Airbnb guests.
- Does the cost connect to communal space in any way? You will need to divide up these costs, as was just described in the previous sentence. For instance, if you and the people staying at your Airbnb have equal access to the living room and kitchen, you could be able to deduct fifty per cent of the costs associated with those areas. This may include the costs of furniture and appliances in addition to those of internet, phone, and cable television.
- Is the cost incurred in a non-public part of the property? You are not allowed to deduct any costs associated with portions of your home that are off-limits to guests staying at your Airbnb.
It is necessary to give careful thought to the answers to these questions because there is the possibility of deducting a percentage of a wide variety of property-related expenses, including the following:
- Mortgage interest or rent
- The fees charged by the council
One other thing to keep in mind regarding expenses that you incur while renting out a portion of the home you reside in is that you can only deduct such expenses in the event that a portion of the home is rented out.
This is somewhat different from the scenario in which you are renting out the entire property, in which case you are eligible to claim deductions for the entire period of time that the property was really available for rent (instead of just the time that it was rented out).
Is it possible for me to pay my tax bill in instalments?
You have the option to use the pay-as-you-go (PAYG) method for filing your income tax instalments if you have a yearly income from residential rentals that is greater than $4,000. This provides you with the ability to make payments on a quarterly basis, protecting you from any unpleasant shocks at the conclusion of the fiscal year.
It doesn’t matter if you overpay or underpay during the year because you’ll either receive a bonus payment at the end of the year or a lower bill to make up for the difference.
Being a host on a property sharing website such as Airbnb or Stayz, or on any one of the many other property sharing platforms, is an excellent way to increase your overall income and qualify for certain tax deductions that are tied to your property.
At the conclusion of the fiscal year, you will have a complete understanding of your commitments if you have been keeping track of your income and expenses with the assistance of cloud-based accounting solutions, such as QuickBooks Self-Employed.
Do you need help with your bookkeeping? Bookkept is a trusted accounting and bookkeeping company in Australia. We perform cheap and quick tax returns for individuals. You can give us a call on (03) 8568 3606 or email us on [email protected].
Tax advice for hosts of Airbnb properties
- Before you decide to become an Airbnb host, you should seek the advice of your accountant. Before you put your home on the market, you need to be sure that you have a complete understanding of all of the potential tax implications of renting it out.
- Obtain a current market evaluation of the property on the day you intend to begin renting it out. This can be quite important for capital gains tax purposes, in particular in the case where the home you rent out is also the home you reside in.
- Make sure that you report every penny you made through Airbnb in your tax return and that you take advantage of every deduction to which you are entitled.
- If you want to get the most out of your depreciation deductions, you should think about acquiring a report from a quantity surveyor.
- Maintain accurate records of all of your income and spending. The ATO might ask to see them, especially if they have questions about a particular spending.
You may maximise your tax return by avoiding these common pitfalls
What are the most important things you need to keep in mind if you opt to prepare your own tax return but have financial dealings with the government that are pretty uncomplicated?
Don’t file late
If you miss the deadline to make your claim by October 31, you may be subject to financial penalties. Another important date to take notice of is the deadline for making tax payments, which is three weeks after the deadline for submitting returns, or by November 21. If you are late in paying your tax liability, the Australian Taxation Office (ATO) is likely to assess interest fees against you.
The majority of taxpayers submit their returns electronically through their myGov accounts. The majority of the required information from your company, banks, government organisations, health funds, and other third parties is pre-filled by the time late July rolls around, which helps to streamline the process.
Filling out your return for your anticipated tax refund online should help speed up the process of obtaining the money. When the return is submitted online, the ATO will typically give refunds within two weeks of receiving the return. Paper returns require human processing, which might take up to ten weeks to complete.
This year, employers have been required to report using Single Touch Payroll, which is a term that refers to the direct transmission of payroll data to the ATO in real time. This indicates that you will not receive a payment summary from your employer; rather, on the 31st of July, an income statement will be accessible to you through your myGov account.
How to get the most out of your tax return
The Australian Taxation Office (ATO) has created a quicker way for claiming tax deductions connected to working from home in acknowledgement of the changes that COVID-19 has brought about to the working arrangements of many employees.
You are eligible to take a deduction of 80 cents for each hour that you work from home between the 1st of March and the 30th of June, provided that you are performing your regular employment obligations and have incurred additional operating expenses as a result of working from home.
A helpful hint: Make sure to keep track of the number of hours you put in when working from home.
Trap: If you choose to go about things in this manner, you won’t be able to deduct any additional costs associated with working.
You are free to choose to continue calculating your deduction using any of the existing methods that are at your disposal (e.g. the fixed-rate method of 52 cents per hour, or the actual cost method). You are free to select whichever of the three approaches will result in the lowest amount of tax liability for you.
Deductions for acceptable capital works and capital allowances (depreciation) should be claimed if you are the owner of a rental property.
Be aware that the regulations changed on July 1, 2017, which limits the number of capital allowance deductions that may be claimed for used assets that were purchased after May 9, 2017.
Depreciation charges can still be claimed on newly purchased plants and equipment by investors, as long as the assets are kept in the investor’s possession.
Tip: Employ the services of a quantity surveyor to conduct an evaluation and draw up a depreciation report in order to specify the amounts that can be claimed on your annual tax return.
The expense of having a report on depreciation prepared can also be written off as an expense.
It is no longer necessary to make contributions to your retirement account through a process known as “salary sacrifice.” Personal superannuation contributions made to an approved fund can now qualify an individual for a tax deduction, provided that the individual is under the age of 75 and meets the statutory work test. This includes individuals aged 65 to 74 years old who meet this requirement.
You are required to give your super fund a “notice of intent to claim” in order to be eligible for a deduction. This notification must be sent on or before the day the tax return for 2019–20 is lodged, or the 20th of June, 2021, whichever comes first.
Be wary of the concessional contributions cap, which stands at $25,000 as of this writing; in order to avoid paying extra concessional contributions tax, restrict deductible contributions to an amount that does not exceed the cap.
Make sure that you have collected all of the donations that were made to deductible gift recipients during the year.
Because taxpayers frequently fail to keep records, they frequently fail to remember to claim them.
Finding electronic receipts sent by email has grown increasingly common, which has resulted in an improvement in the convenience with which these receipts may be located.
Private health cover
If you have private hospital insurance coverage, you will not be responsible for paying the Medicare Levy Surcharge (MLS). Simply having “extras” or “ancillary” coverage is not sufficient on its own.
If a taxpayer has an annual income of more than $90,000 (singles) or $180,000 (married filing jointly), the MLS will apply to them (families).
The Australian Taxation Office (ATO) has already received more than two million tax returns, therefore it is cracking down on some of the more bizarre claims.
As of the first of July in 2019, health insurers are exempt from the obligation of sending members of their private health insurance a statement. If you are submitting your return electronically, the myGov portal should be used to pre-fill the information on your health fund.
If the information has not been received by the 20th of July, you may need to get in touch with your service provider in order to acquire a statement directly.
The information shown above can serve as some broad direction. Since each circumstance is unique, it is essential for a host to be adaptable.
crucial that you seek the guidance of a tax specialist who is able to evaluate your circumstances and provide guidance on how to maximise the tax benefits you receive in relation to the rental property.