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Tax Deductions & Accounting Tips for Airbnb Hosts

Tax Deductions & Accounting Tips for Airbnb Hosts

So, you’ve joined the exciting world of Airbnb hosting! You’ve listed your spare room or apartment, welcomed guests from all over the world, and maybe even earned a nice piece of extra income.

But with great income comes tax responsibility, and navigating the tax world as an Airbnb host can feel a bit overwhelming. Don’t worry!

In this guide, we will talk about essential tax deductions and accounting tips tailored specifically for Airbnb hosts in Australia.

Are You Running a Business or Just Sharing Your Space?

The good news is, that the Australian Tax Office (ATO) understands there’s a difference between running a full-blown rental business and occasionally renting out a spare room. If you’re renting out a room or two in your own home, you probably aren’t running a business. This means the complex business tax rules won’t apply to you.

Understanding Rental Income and Taxation

As an Airbnb host, the income generated from renting out your property is considered assessable income and must be reported on your tax return. However, if you’re renting out one or two spare rooms in your primary residence on a small scale, you’re not operating a business, and complex business taxation rules don’t apply to you.

Tax Deductions for Airbnb Hosts

One of the key benefits of being an Airbnb host is the ability to claim tax deductions for expenses incurred in deriving rental income. These deductions can help offset your taxable rental income, ultimately reducing your tax liability. Let’s examine the types of expenses that are deductible for Airbnb hosts:

Expense Type

Examples

Directly Associated with Rented Area

Furniture depreciation, cleaning fees

Shared Areas

Internet, utilities, shared furniture

Entire Property Expenses

Mortgage interest, council rates

Guest Experience Enhancement

Welcome gifts, professional photography

Business-related Transportation

Travel to manage property, marketing costs

Maintenance and Repair

Repairs, maintenance of rental property

Let’s understand the above claimable deductions in detail. 

Essential Expense Deductions for Airbnb Hosts

As an Airbnb host, you can claim tax deductions for various expenses related to your rental property. These deductions can help lower your taxable rental income, reducing the amount of tax you owe. Let’s dive deeper into each type of deductible expense:

#1 Directly Associated with Rented Area

These expenses directly benefit the area of your property that is rented out to guests. Examples include:

  •   Furniture Depreciation: The decrease in the value of furniture used in the rented space over time.
  •   Cleaning Fees: Costs incurred for cleaning the rented area between guest stays.

#2 Shared Areas

Expenses related to areas of your property that are shared between you and your guests. This can include:

  •   Internet: The cost of providing internet service to both you and your guests.
  •   Utilities: Expenses such as electricity, water, and gas used by both you and your guests.
  •   Shared Furniture: Depreciation or maintenance costs for furniture used in shared spaces like the living room or kitchen.

#3 Entire Property Expenses

Costs associated with the entire property, including areas used for personal use and those rented out. Examples are:

  •   Mortgage Interest: Interest paid on the loan taken out to purchase the property.
  •   Council Rates: Fees charged by local government authorities for services like garbage collection and street maintenance.

#4 Guest Experience Enhancement

Expenses aimed at improving the experience for your Airbnb guests. This can include:

  •   Welcome Gifts: Small items or amenities provided to guests upon arrival.
  •   Professional Photography: Hiring a professional photographer to take high-quality photos for your Airbnb listing.

#5 Business-related Transportation

Costs associated with travel and transportation for managing your Airbnb property. This may include:

  •   Travel Expenses: Transportation costs for visiting the property, meeting with guests, or attending to maintenance issues.
  •   Marketing Costs: Expenses for advertising your Airbnb listing or promoting your property through various channels.

#6 Maintenance and Repair

Expenses incurred for repairing and maintaining your rental property. This can include:

  •   Repairs: Costs for fixing broken appliances, plumbing issues, or other maintenance problems.
  •   Maintenance: Regular upkeep expenses such as painting, landscaping, or pest control services.

Sharing is Caring (Especially When It Comes to Expenses)

If you’re renting out a room in your own home (where you also live), things get a bit more interesting. You’ll need to apportion some of your expenses based on the area used for Airbnb and the area you use privately.

For example, let’s say your entire apartment is 100 square metres, and you rent out a 20 square metre bedroom. That means 20% of your expenses for things like utilities, mortgage interest, and council rates would be deductible as Airbnb expenses.

A Few Things You Can't Claim

While there are many deductions available, there are also some expenses you can’t claim. These include:

  • The cost of your regular groceries or meals you eat at home (even if you share some snacks with guests)
  • The cost of your daily commute from home to work (unless you use your car for specific Airbnb-related travel)
  • Expenses not directly related to your Airbnb rental, like repairs to your personal belongings

Capital Gains Tax (CGT) Considerations

Most of the time, selling your principal residence (your main home) is exempt from Capital Gains Tax (CGT) in Australia. However, if you’ve used part of your home for income-earning purposes, like renting it out on Airbnb, a portion of the capital gain from selling the property might be taxable.

This means you might need to calculate how much of the gain is taxable and how much is covered by the main residence exemption when you sell. For Sarah, this could mean using the 20% ratio (spare room size compared to total apartment size) to determine the taxable portion of any capital gain when she eventually sells her apartment.

Real Life Example

Let’s imagine Sarah, who rents out a spare room in her Melbourne apartment. Here’s how some deductions might work for her:

  • Rental Income: Sarah earns $5,000 per year from renting out her spare room.
  • Direct Expenses:
    •   Cleaning supplies: $200 per year (fully deductible)
    •   Depreciation on furniture in the spare room (bed, bedside table, etc.): $100 per year (claimed over time)
  • Shared Expenses (Apartment is 100 sqm, Spare Room is 20 sqm):
    •   Electricity bill: $1,200 per year (20% = $240 deductible)
    •   Internet: $800 per year (20% = $160 deductible)
    •   Council rates: $1,000 per year (20% = $200 deductible)

By claiming these deductions, Sarah can reduce her taxable income from Airbnb rentals. Here’s the calculation:

  • Rental Income: $5,000
  • Deductible Expenses:
    •   Direct Expenses: $200 + $100 = $300
    •   Shared Expenses: $240 + $160 + $200 = $600
    •   Total Deductions: $300 + $600 = $900
  • Taxable Income: $5,000 – $900 = $4,100

This means Sarah only pays tax on $4,100 of her Airbnb income, potentially saving her a good amount of money at tax time.

Don't Get Stuck! Seek Professional Help

At KPG Taxation we understand that the tax implications of Airbnb hosting can be complex, especially for individuals with limited experience in taxation. Our qualified tax professionals can provide valuable guidance and ensure compliance with tax laws and regulations.

Consulting with KPG Taxation

Focus On Growing Your Business, Leave The Accounting On Us!

  • Income Tax : File your taxes & get the best claims & returns.
  • Accountancy : Hire expert accountants to manage your transactions.
  • Bookkeeping : Let us handle your record books and expense reports.
  • Business Advisory : From company set-up to payroll, we handle it all.