Sisters In Law: Do you have to declare income from renting out a home on Airbnb?

A Queensland woman’s boyfriend told her she didn’t need to declare money from her “hobby”, but lawyers have warned she could be in trouble.

Welcome to Sisters In Law, news.com.au’s weekly column solving all of your legal problems. This week, our resident lawyers and real-life sisters Alison and Jillian Barrett from Maurice Blackburn advise a woman on whether renting out her apartment through Airbnb counts as income.

Question: I bought an apartment about six months ago that I intended to renovate and live in but now my circumstances have changed. I’ve fallen madly in love and I’m planning to move in with my partner and want to rent out my apartment. My boyfriend says it’s better to rent through Airbnb as you don’t need to declare it as an income like when you lease a place to permanent tenants. He says renting out a place through Airbnb is a hobby more than a job so it doesn’t count as an income. Is this true? I’m already making a loss on my place and want to make sure I rent it out the most cost-effective way possible. – Sarah, Queensland

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The woman fell in love and decided she didn’t want to live in the apartment she purchased anymore. Picture: iStock

Answer: We wouldn’t suggest you follow your boyfriend’s advice as you might find yourself dodging your legal obligations to pay tax.

If you don’t pay proper tax, you are exposing yourself to possible prosecution, fines and – in the most serious cases – jail time.

Income received through short-term rental property platforms like Airbnb is treated just like income from any residential property rental arrangement, including long-term or permanent rental arrangements.

This is different to income received via running a business (such as commercial residential accommodation like a hotel) or a hobby.

At the end of the financial year, you would need to declare your earnings from the Airbnb rental to the Australian Taxation Office (ATO) when you lodge your tax return.

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Airbnb is treated just like income from any residential property rental arrangement. Picture: iStock

The only potential exception to this would be if the total income you receive from all sources does not meet the tax-free threshold, which is currently $18,200.

However, be aware that earning more money usually means you need to pay more tax. If you haven’t put sufficient money aside throughout the year there is a risk you could end up with a large tax bill.

Thankfully, you can claim deductions for all expenses you have incurred as a result of renting out the apartment, which will reduce your taxable income.

Depending on the value of the deductions as against the rental income, you may in fact make a loss. This can then be claimed against your other income and you may not be required to pay additional tax, or you could even be eligible for a refund.

Airbnb rentals often allow a greater number of expenses to be claimed, compared with a longer term rental.

Deductions can be claimed like depreciation on the cost of furniture. Picture: iStock

This can include things like, all or part of:

• Wi-Fi supplied to the rental

• Water and electricity bills

• Council rates and any body corporate fees

• Interest on any mortgage you have

• Upkeep and repairs to the apartment

• Depreciation on the cost of furniture

• Any consumables you purchase for the property (eg grocery or personal care items)

• Commercial cleaning costs

• Service fees and commissions charged by Airbnb

• Any insurance you take out to cover the apartment or its contents

You should factor in potential capital gains tax to your thinking. This is tax payable on any profit you make from the sale of things like a house or apartment.

A capital gain from the sale of your main home is usually exempt from any tax, but a rental property is not.

Be careful of the tax implications if you decide to sell your apartment and buy a place with your boyfriend. Picture: iStock

If you end up renting out your property, and then eventually selling it, the gain needs to be included in your tax return for an assessment of tax payable, which can be hefty.

You need to ensure you keep really good records of all income and expenses, remembering that everything earned through Airbnb is trackable and you can’t fly under the ATO’s radar.

It would be prudent to get advice from an accountant before deciding if Airbnb is the best option for you.

This legal information is general in nature and should not be regarded as specific legal advice or relied upon. Persons requiring particular legal advice should consult a solicitor.

If you have a legal question you would like Alison and Jillian to answer, please email [e-mail]

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