How to Claim Airbnb Tax Deductions on your Rental Property

Airbnb tax deductions and the interpretation of how taxation laws revolve around using your property for Airbnb cause a lot of confusion, to say the least. 

Not only are investors keen to find out what they can claim, but they also need to understand how much they can claim and the implications of capital gains tax – something that catches a lot of Airbnb hosts off-guard! 

Understanding the Airbnb tax in Australia is the first crucial step for hosts to ensure they meet their tax obligations and maximise potential deductions. 

First Thing’s First 

To be clear, earning additional income means additional taxes. The same principle applies to generating another source of income through your property. However, Airbnb tax deductions can be used to reduce your tax liability. 

So, if you’re reading this, you’re likely already an Airbnb host or considering using your investment property for Airbnb. Let’s look at what this involves and how you can take advantage of the Airbnb tax deductions at your disposal. 

Airbnb Tax Deductions & Your Property Living Situation 

Before explaining how the tax system works for Airbnb tax deductions, it’s important to note that this guide is intended for general guidance and should not be considered financial advice.  

We recommend you engage a qualified accountant to assess your situation. Two scenarios can affect your Airbnb tax deductions: 

1. If you rent out your entire home for Airbnb 

2. If you rent out a portion of your home for Airbnb 

These two scenarios mean that you can claim expenses as Airbnb tax deductions into three categories: 

3. Expenses and tax depreciation directly associated with the rented area (e.g. bedroom) can be deductible in full 

4. Expenses and tax depreciation for shared areas need to be apportioned 

5. Costs related to the private area only for the host is not tax-deductible 

Understanding these scenarios will help you claim tax deductions effectively and maximise your financial benefits. 

Short-Stay Accommodation vs Residential Rental for Airbnb Tax Deductions 

Short-stay accommodation such as hotels, motels, and guesthouses have significant advantages in claiming tax depreciation at a rate of 4%, provided that the property commenced construction after 27 February 1992. 

Unfortunately, Airbnb isn’t classified as short-stay accommodation. Instead, it’s classified as a regular residential investment property. This means it qualifies for Division 43 Capital Works as long as it commenced building after 15th September 1987 or underground capital improvements from 27th February 1992.  

Additionally, Airbnb hosts are generally not liable to pay Goods and Services Tax (GST) on their rental income, as the ATO classifies it as residential rent. 

Division 40 Plant and Equipment such as your rangehood, air conditioning units, hot water systems or similar are eligible for depreciation if purchased brand new from a retailer or are part of a new renovation. Unfortunately, with the recent 2017 legislative changes, second-hand or previously used plant and equipment are not depreciable. 

Airbnb Tax Deductions When Renting Out an Entire Home 

If you don’t live in the property and the entire property is used for rentals, you can claim depreciation as an Airbnb tax deduction over the whole premise, even if no one was occupying the property.  

Additionally, you can claim various deductible expenses, such as mortgage interest and maintenance costs, which are essential to support your claims to the Australian Tax Office (ATO). 

You must be very careful to ensure that your property is available at market rate. This will prevent people from renting out the property to family and friends at discounted rates to take advantage of Airbnb tax deductions and depreciation. 

If you move back into the property, you cannot claim depreciation or any Airbnb tax deductions from when you move back in. Instead, you’ll need to calculate your Airbnb tax deductions pro rata for the period the property was available for rent. 

Airbnb Tax Deductions Renting Out a Portion of Your Home 

To calculate Airbnb tax deductions when you only rent out a part of your home, this is called apportioning – something that many owners aren’t aware of.  

Including rental income as part of your assessable income when filing tax returns is important. This is calculated based on the amount of floor area that’s used for private and rental purposes. 

Bear in mind that due to the 2017 legislative changes, Division 40 Plant and Equipment, such as air conditioners and ovens, are not claimable unless they are brand-new and not owner-occupied, i.e., you don’t live in the home. 

What Depreciable Assets can I claim for Airbnb Tax Deductions? 

For Division 40 Plant and Equipment, if they have been purchased specifically for the use of Airbnb, you can claim deductions and the entire Airbnb tax deduction benefit for the asset. This includes: 

1. Couches/sofas 

2. Tables and chairs 

3. Beds 

4. Appliances 
    
   However, if an asset is shared, such as bathrooms and living rooms, it is only partly deductible as Airbnb tax deductions and is once again apportioned and pro-rated depending on usage. 
    
   For Division 43 Capital Works, the key factor in determining your deductions is the ‘apportioned floor space ‘. This is the space in your property that is used for rental purposes compared to the space you use personally. Understanding this concept is important for maximising your Airbnb tax deductions. 

Other Airbnb Tax Deductions 

Depending on whether you rent out a portion of your property or the entire property, you could potentially claim the below as Airbnb tax deductions: 

1. Cleaning costs for the rented spaces 

2. Repairs and maintenance 

3. Food and meal provisions for Airbnb guests 

4. Airbnb service fees and commission 

5. Listing and property management costs 
    
   The below can be partially claimed as Airbnb tax deductions: 

1. Interest on your loan 

2. Council rates 

3. Utilities and insurance costs 
    
   It is also crucial to understand your income tax obligations. Rental income must be declared in your tax returns, and knowing the deductions can help offset your tax liabilities. 

Capital Gains Tax and Airbnb Tax Deductions 

If you use your principal place of residence to rent out some rooms for Airbnb, the ATO has outlined that you will not be completely exempt from the main residence capital gains tax (CGT) exemption. 

Even if you’re using a portion of your property to produce assessable rental income, you would only be eligible for a portion of the main residence CGT exemption. This means that you’ll likely need to pay capital gains tax on a portion of any capital gain (profit) realised when you sell your main property. 

It’s best to keep accurate records to indicate clear starting (and ending) points to calculate capital gains tax. These are then factored in with the following: 

1. Total floor space apportioned towards producing assessable rental income 

2. Total period of use for Airbnb rentals 

3. Eligibility for the absence rule 

4. Whether the property was first used to produce income after 20 August 1996 
    
   The ATO has a handy Property Exemption Tool for calculating this. Alternatively, we recommend speaking to your tax accountant. 

Do I Need to Charge GST for Airbnb? 

Airbnb is subject to residential taxation laws, so Goods and Services Tax (GST) is not applicable to it (even if the earnings are over $75,000). 

This also means you can’t claim GST credits for any expenses or costs related to the property. 

State Government Laws on Short-Term Rental Limit 

It’s important to pay attention to state-specific laws relating to how many nights you can rent out your property for Airbnb. In NSW, this is limited to 180 nights a year, and all letting activity is still deemed to be residential rather than commercial for tax purposes. Understanding tax laws related to short-term rentals is crucial to effectively navigating potential tax implications. 

You can transition to long-term leases for the remainder of the year after exhausting the 180-day limit to still be able to claim Airbnb tax deductions for the full year. 

The important thing to remember is that having the property actively available to rent is sufficient in claiming tax deductions for the entire year. If you elect to move into the property as your main residence, you must apportion your tax deductions accordingly. 

We also recommend working closely with your accountant to ensure you’re calculating this accurately. 

Key Takeaways 

Every investor’s situation is different. Whether you’re living in the property and partially renting it out or completely renting out the property as an Airbnb, these circumstances all have a part to play in how you can claim rental property depreciation.  

Given the situation’s complexity, investors would be wise to discuss their tax matters with their accountant to ensure they’re getting the most out of tax depreciation for their investment property. It is also crucial to consult a qualified tax professional to navigate the complex tax implications and ensure compliance. 

Tax depreciation on plant and equipment and capital works is the second largest tax depreciation opportunity for investment properties after interest and should always be considered when maximising your Airbnb tax deductions. 

Before considering using your property for Airbnb, we recommend the following: 

1. Seek advice from your accountant and understand the full tax implications of renting your property 

2. Ascertain a valuation on your property before you rent it out to estimate CGT impact 

3. Keep records of all your Airbnb rental activity and disclose your Airbnb income in your tax return to ensure you can claim all Airbnb tax deductions. 

Engage a quantity surveyor for a tax depreciation schedule to maximise depreciation claims on plant and equipment as well as capital works. 
 
At Duo Tax, our tax depreciation schedules provide both the prime cost and diminishing value depreciation schedules (you can compare them in our sample report). They’re designed for both investors and accountants so that you can determine what is best for you. 
 
Our ‘Duo Tax’ method focuses on being the most aggressive in depreciation claims, the fastest in turnaround time (within five business days), and the most affordable. To purchase your depreciation schedule, call us for a free estimate of how much depreciation we can claim for you.