Airbnb has emerged as a great option for property owners to convert their vacant properties into a source of income. However, the tax laws around Airbnb are murky, to say the least. Most people are confused about what is taxable, and even more about calculating depreciation on rental property.
Here is an attempt to clarify how to claim tax deductions on your Airbnb property:
Property Living Conditions
To understand how Airbnb tax deductions work, you need to decide if:
- you rent your entire property for rental
- you rent a portion of your property for rental
These two scenarios divide the tax deductions into the following three categories:
- Claiming depreciation on property rented; fully tax-deductible
- Tax deductions on shared property; need to be apportioned
- Expenses on the area used by the owner for private use; not tax-deductible
Short Stay vs. Residential Rental
All properties constructed after 27th Feb 1992 in Australia can claim good tax deprecation (up to 4%) by classifying as a short stay. Hotels, motels, and guesthouses notably benefit from it. However, Airbnb is not classified as a short stay; instead, it is normal residential property investment.
Residential properties are covered under Division 43 Capital Works (if construction began after 15th Sept 1987). Division 40 Plants and Equipment covers all equipment under tax depreciation report as long as they are bought new or are a part of a renovation. 2017 legislation excluded any second-hand appliances from it.
Renting the Entire Home
If the owner does not live in the property and has put up the entire property for rental, then the entire area is eligible for tax deductions – even when it lies vacant. However, many people rent their properties to friends at cheaper rates and unfairly benefit from tax deductions. To prevent this, it is mandatory that your property is available at market rates.
In case you decide to move to live in the property, it becomes ineligible for tax deductions from the month you moved in.
Renting a Portion of a Home
Renting a portion of home while also living in it, is called apportioning. The tax deductions in such cases are determined by the floor area occupied by rental and private use. After 2017 legislative changes, appliances like ovens and ACs are not claimable under apportioning, even if used exclusively for rentals – unless the owner does not live in the house.
Depreciable Assets to Claim
Under Division 40, if an asset has been bought specifically for the Airbnb property, it could be claimed entirely for the Deppro depreciation. Such assets include couches, sofas, beds, tables, and chairs, as well as any appliance.
However, if the asset is shared by the owner too (like a bathroom and living room), only a portion of it could be claimed. This is determined by the apportioned floor area.
Due to the residential taxation laws, Airbnb is excluded from the purview of GST. Hence, no GST will be charged on the expenses made on your Airbnb property. However, it also means that all expenses on the Airbnb property are not eligible for GST credits.
Property tax laws are always confusing. We hope that at least now, you will be more informed about claiming depreciation on property.