Tax Implications For Airbnb Hosts
Airbnb is an online, worldwide system of renting either all or part of properties, such as one bedroom with shared bathroom and kitchen. It allows individuals to offer up their properties, manage bookings and generate income without having to use an agent.
Airbnb and other sites such as Stayz.com and AURA have opened up the short-term rental market. This has created options for those wanting to earn extra income and those searching for accommodation. The potential tax implications for Airbnb hosts using this system, however, are important to keep in mind.
Hosts Beware! Know the laws
Of particular concern to hosts are the local, state and federal tax laws. These can have unintended consequences for Airbnb hosts who unwittingly expose themselves to tax liabilities by offering their homes on sharing sites. Hosts stung with a surprise tax bill have been well documented in the media.
So what does this mean if you are considering becoming an Airbnb host in the ACT? This article highlights some potential tax implications for Airbnb hosts.
Introduction to Land Tax in the ACT
In the ACT, if residential property and apartments are rented and earning an income, the property will be subject to Land Tax.
Land Tax is payable each quarter and is calculated based on a fixed charge (currently $1,203.00) in addition to an amount based on the average unimproved value of the property.
Land Tax liability can, in other words, end up being a substantial additional cost to operating a rental property.
Are Airbnb properties subject to Land Tax?
The Land Tax Act 2004 (ACT) applies to properties that are “rented” for the purposes of the Residential Tenancies Act 1997 (ACT). In other words, the property must be subject to a “lease” to attract a land tax liability.
So is an Airbnb arrangement a “lease”? Although this question has not gone before the ACT Courts, the Victorian Supreme Court recently ruled that an Airbnb arrangement does constitute a lease.
Land Tax usually does not apply to residential properties that are occupied by an owner as their principal place of residence. However, having another dwelling or rental property on the same parcel of land as your principal place of residence can lead to Land Tax becoming payable based on the proportion of the rented floor area.
As such, the Airbnb host who rents out their granny flat on the first day of the quarter, even for one night, runs the risk of being liable for land tax for that quarter.
Capital Gains Tax and Income Tax
Introduction to Capital Gains
A ‘capital gain’ is the difference between what it costs you to acquire an asset and the amount you receive when you dispose of it. When you sell assets such as real estate or shares, you make either a profit (a ‘capital gain’) or a loss (a ‘capital loss.’)
You need to report capital gains and losses in your income tax return and pay tax on your capital gains. Although it’s referred to as Capital Gains Tax (CGT) it isn’t a distinct tax as it forms part of your income tax.
Will Airbnb Properties be subject to CGT?
CGT is not usually payable on your family residence. However, if you rent out or derive income from your family home (or even a part of it) then your family home may be assessed differently by the ATO.
This could mean that when you eventually sell your property, you may face a hefty tax bill for the CGT component. Additionally, any income derived may form part of your yearly assessable income for tax purposes. Although CGT is calculated years down the track when the asset is sold, it is affected by events taking place throughout the course of your ownership.
Airbnb and similar accommodation sharing sites head into previously uncharted territory when it comes to Capital Gains Tax and Land Tax. We recommend that the tax implications for Airbnb hosts are discussed with a qualified accountant before property is rented out.
If you have any questions, please get in contact with Bede Foundling on (02) 6140 3263 or [email protected].