Hosting Airbnb guests can be an exciting and rewarding experience. But, when tax season rolls around, it can be daunting to navigate the Airbnb tax implications in Australia. If you’ve found yourself overwhelmed by the complexities of Australian Tax Office (ATO) regulations around Airbnb hosting then we are here to help. 

In this guide, we’ll walk you through ways to stay compliant while maximising tax deductions for Airbnb hosts. This comprehensive guide will help you understand tax obligations, what you can and can’t deduct, and how to avoid common pitfalls when reporting Airbnb income. 

So read along! 

Understanding Airbnb tax obligations in Australia

The ATO considers income from Airbnb rentals as assessable income that you must declare on your tax return. This applies whether you’re renting out a spare room or an entire property.

You must report all income earned from Airbnb rentals on your annual tax return, regardless of the amount. This includes:

• Rental payments from guests
• Cleaning fees
• Any other fees charged to guests

When it comes to claiming Airbnb tax deductions in Australia, you need to consider how you are using the property and how much of it you rent out. 

If you are not renting a standalone property, then you’ll need to calculate the percentage of the property you use for your private needs versus the portion you rent out. Also, if you do rent out an entire property but sometimes use it privately, then you’ll need to apportion your expenses accordingly. For example:

• If you rent out one room of a three-bedroom house, you might claim 1/3 of shared expenses like utilities and internet.
• If you rent out your entire property for 180 days of the year, you can claim 180/365 (about 49%) of annual expenses like mortgage interest and council rates.

At every step of the way, you should keep detailed records of both income and expenses. This includes: 

• All income received from Airbnb rentals
• Costs related to your Airbnb activities
• Dates the property was available for rent
• Periods of personal use vs. rental use

The ATO requires you to keep these records for at least five years.

By understanding and fulfilling these tax obligations, you can ensure compliance with ATO regulations and avoid potential penalties. If you need clarification about your obligations, consult a tax professional or an income tax accountant. 

What tax deductions can Airbnb hosts claim?

As an Airbnb host, you can claim a variety of tax deductions related to your rental activities. This is in addition to any other tax benefits for which you are eligible. 

Direct Expenses

Direct expenses are costs you specifically incur for your Airbnb rental. These are fully deductible and include:

• Cleaning fees
• Guest amenities (toiletries, tea, coffee, etc.)
• Advertising costs
• Airbnb service fees
• Welcome gifts for guests
• Professional photography for listings

Indirect Expenses

Indirect expenses are costs associated with owning and maintaining the property. If you rent out your entire property, these are fully deductible. For partial rentals, you’ll need to apportion these expenses. Examples include:

• Utility bills (electricity, water, gas, internet)
• Mortgage interest
• Council rates
• Property insurance
• Repairs and maintenance

Let’s say Sarah owns a 2-bedroom apartment in Sydney that she rents out full-time on Airbnb. Some of the direct expenses she could claim include:

• Cleaning fees: Sarah pays a professional cleaning service of $100 after each guest stays to clean the apartment thoroughly.
• Guest amenities: She spends $50 per month on toiletries, coffee, tea, and other consumables for guests.
• Airbnb service fees: Airbnb charges Sarah a 3% host service fee on each booking.
• Utilities: The electricity, water, and Internet bills for the apartment amount to $200 per month and are fully claimable. 
• Property insurance: Sarah pays $1,200 annually for a comprehensive short-term rental insurance policy.
• Maintenance and repairs: She spent $500 on plumbing repairs and $300 on repainting a bedroom during the year.
• Welcome gifts: She provides a small welcome basket with local treats for each guest, costing $20 per stay.
• Professional photography: Sarah paid $500 for professional photos of her apartment for the Airbnb listing.
• Mortgage interest: If Sarah has a mortgage on the property, she can claim the interest portion of her payments.

These expenses are fully deductible because Sarah uses the entire apartment for Airbnb rentals. Sarah would need to keep detailed records and receipts for all these expenses to support her claims at tax time.

Depreciation

Depreciation allows you to claim the decline in value of furniture, appliances, and fittings used for your Airbnb rental. This includes items like:

• Beds and mattresses
• Sofas and chairs
• TVs and entertainment systems
• Domestic appliances (refrigerator, washing machine, etc.)
• Air conditioning units

Capital Works Deductions

Capital works deductions are related to the construction costs of buildings or structural improvements. These can be claimed at 2.5% per year for 40 years from the date of construction. Examples include:

• Building a new room or extension
• Adding a deck or patio
• Installing built-in wardrobes or kitchen cabinets

Professional Services

You can also claim fees paid for professional services related to your Airbnb. These may include:

• Accountant fees
• Property management fees
• Legal advice costs

Example

Let’s continue with Sarah’s 2-bedroom apartment in Sydney, which she rents out full-time on Airbnb. 

• Mortgage interest: If Sarah has a $500,000 mortgage at 3% interest, she could claim around $15,000 per year in interest payments.
• Council rates: She can claim annual council rates of $2,000 for the property.
• Strata fees: If the apartment is in a strata-titled building, Sarah might pay $4,000 per year in strata fees.
• Property management fees: If Sarah uses a property manager to handle bookings and guest communications, she might pay 15% of her rental income, which could be around $9,000 per year for a well-performing property.
• Landlord insurance: A comprehensive landlord insurance policy might cost $1,500 per year.
• Accounting fees: Sarah pays her accountant $800 annually to prepare her tax return and provide advice on her Airbnb business.
• Pest control: Annual pest control services might cost $300.
• Gardening and common area maintenance: If strata fees do not cover these, Sarah might spend $1,000 per year on these services.
• Depreciation: Sarah can claim depreciation on the building structure (if built after September 1987) and on capital improvements. This could amount to several thousand dollars per year, depending on the property’s age and value.

These indirect expenses are generally fully deductible if the property is used exclusively for Airbnb rentals. However, if Sarah uses the property for personal purposes at any time during the year, she would need to apportion these expenses based on the number of days the property was available for rent versus personal use.

Again, Sarah needs to keep detailed records and receipts for all these expenses to support her claims at tax time. 

What cannot be claimed as tax deductions?

While there are many Airbnb costs you can claim at tax time, there are several types of expenses you should not include. These are: 

• Expenses related to personal use of the property
• Costs of purchasing the property (e.g., stamp duty, legal fees for property acquisition)
• Capital gains tax when selling the property
• Expenses which guests have reimbursed

Apportioning expenses: Personal vs. business use

If you use your property for both personal and Airbnb purposes, you’ll need to apportion your expenses accordingly. The ATO recommends using a reasonable method to calculate the deductible portion based on your private versus rental use. 

For example, if you rent out a room in your home, you might calculate the percentage of floor space used for Airbnb and apply that to shared expenses like utilities and Internet. For time-based apportionment, you could use the number of days the property was available for rent compared to the total days in the year.

GST and Airbnb hosting: What you need to know

Businesses with an annual turnover of $75,000 or more must register for GST in Australia. Once registered, businesses must collect GST from their customers and remit it to the ATO. They can also claim GST credits on eligible business purchases.

Generally, Airbnb rentals fall under residential taxation laws, and GST is not applicable, even if earnings exceed $75,000. However, if your Airbnb activities are deemed to be commercial in nature (for example, operating like a hotel), GST obligations may apply.

Note that because GST does not usually apply to Airbnb rentals, you also can’t claim GST credits for expenses related to your Airbnb property.

Airbnb tax calculator: Simplifying your tax deductions

There is no official Airbnb tax calculator in Australia yet. You can refer to the latest ATO guidelines or the official Airbnb website, which provides tax guidance for Australian Airbnb hosts. 

That said, it’s difficult to predict tax deductions and obligations using an online calculator because they will be affected by your other income and activities. For the most accurate calculations, you may want to consult a personal income accountant who specialises in property investments and short-term rentals.

Common mistakes to avoid when claiming tax deductions

To ensure you’re compliant with ATO regulations and maximising your deductions, avoid these common errors:

• Failing to declare all Airbnb income
• Claiming non-deductible expenses
• Not keeping accurate records of income and expenses
• Incorrectly apportioning expenses for mixed-use properties
• Overlooking depreciation deductions

Maintaining detailed records of all transactions, including bank statements, invoices, and receipts, is crucial. Consider using accounting software or engaging a tax professional to ensure accuracy and compliance.

FAQ

Do I have to pay tax on my Airbnb income in Australia?

Yes, the ATO considers income from Airbnb rentals assessable income. As such, you must declare it on your tax return, regardless of whether you’re renting out a room or an entire property.

Can I claim my entire mortgage payment as a tax deduction?

No, you can only claim the interest portion of your mortgage payments as a tax deduction. The principal component is not deductible. If you use the property for both personal and Airbnb purposes, you’ll need to apportion the interest accordingly.

How should I apportion my expenses if I live in the property part-time?

You should apportion expenses based on the time the property is available for rent versus personal use. For example, if you rent out your property for 180 days a year, you can claim 49.3% (180/365) of annual expenses like mortgage interest and council rates.

Final thoughts

As an Airbnb host, it is crucial for you to understand Airbnb tax deductions in Australia to maximise your tax benefits and remain compliant with ATO regulations. By carefully tracking your expenses, understanding what you can and cannot claim, and seeking professional advice when needed, you can navigate the complexities of Airbnb tax deductions with confidence. 

Lawpath can help you along the way. Ask a specialised accountant for help with your personal income taxes to avoid penalties and maximise claims.