In today’s sharing economy, platforms like Airbnb make it easier than ever to earn extra income by renting out a spare room or even your entire home. While this can be financially rewarding, many Australians are unaware of the tax implications that come with these arrangements. Understanding your obligations can help you avoid unexpected tax bills and penalties.

Declaring Rental Income

When you rent out part or all of your home through digital platforms, the ATO requires you to declare this income on your tax return. It’s essential to keep detailed records of all rental income and maintain documentation for any expenses you intend to claim as deductions. It’s important to note that in most cases, property rental doesn’t qualify as a business under the ATO’s rules, even if you provide additional services like breakfast or cleaning.

Capital Gains Tax (CGT) Considerations

One area where many property owners get caught out is Capital Gains Tax (CGT). While your main residence is typically exempt from CGT, this exemption can be partially lost if you rent out part of your home. The reduction in the exemption is based on the floor area rented and the duration of the rental arrangement. This is an important consideration if you plan to sell the property in the future, as it could affect your tax position.

Interestingly, if you temporarily move out of your main residence to live elsewhere, you may still be able to retain the full CGT exemption, provided certain conditions are met.

Deductions You Can Claim

You can claim a portion of expenses related to the rented space, including:

• Council rates
• Loan interest
• Utilities
• Property insurance
• Cleaning costs

The deductible amount depends on both the percentage of the property rented out and the duration of the rental period during the financial year. Additionally, platform fees or commissions charged by services like Airbnb are often fully deductible, which can help offset your rental income.

Importance of Record-Keeping

Proper record-keeping is crucial. You’ll need to maintain statements from rental platforms showing your income, as well as receipts for any expenses you plan to claim. Without proper documentation, legitimate deductions could be disallowed during an ATO review or audit, potentially leading to additional tax liabilities.

A Word of Caution: The ATO is Watching

The ATO has ramped up its focus on the sharing economy, particularly short-term rental arrangements. With sophisticated data-matching capabilities, the ATO can compare what you report on your tax return with data from platforms like Airbnb. This means discrepancies are more likely to be identified, increasing the chances of scrutiny.

Failing to declare your sharing economy income can lead to penalties and interest charges, which could significantly impact your financial situation.

Get Professional Advice

Navigating the complex tax implications of property rentals can be challenging, even for the most diligent property owners. To ensure you meet all your obligations and maximise your deductions, it’s a good idea to consult with a qualified accountant. They can provide personalised advice based on your situation, help you establish proper record-keeping systems, and ensure you stay compliant with the latest ATO requirements.