Do you know about the downside of Airbnb? | Tax & Property Depreciation Schedule

Something you didn't know about depreciation

Do you know about the downside of Airbnb?

You will have clients either doing short term rentals now or seriously considering it. 

We don’t just mean Airbnb, of course, but that’s the one people think of when we talk about short term rentals.

And when we write about the ‘downside’, we don’t mean the odd glass getting smashed or disappointing stains on a rug.

Airbnb came roaring back after Covid and we are now seeing another surge as clients try to generate some income to cope with rising interest rates and inflation.

We are amending a lot of our Depreciation Schedules these days to add new furniture. It’s best for you if we add it so everything is in the one place. We do those amendments free for your clients.

Do you have a client who needs a Depreciation Schedule you would like us to talk to? If you do, log an enquiry using your link, we’ll call them within the hour. We can have a sensible conversation with them about their property to save you some time. It’s what you would expect from a company that has been doing this for over 20 years.

Back to short term rentals:

Key Points

  1. Unhosted properties are those where the host lives elsewhere and the guests have access to the entire property.
  2. Hosted properties are those where a client is living in the property and renting out some spare rooms. 
  3. Depreciation can only be claimed on brand new furniture purchased for the use of the Airbnb clients. Furniture cannot be claimed.
  4. There will be CGT implications for your client in either of these scenarios. You’ll need to be sure they are aware of these.

Unhosted Properties

Pool area of an Airbnb property, with a shade cloth overhanging the pool, and a table and chair setting to the sideUnhosted properties are ones where the host lives elsewhere and the guests have free reign of the property.

With the latter, all the states and the LGAs within them have varying and changing rules on how many days an unhosted property can be rented out in a year. 

NSW is the strictest with all hosts needing to register their properties on the state government’s STRA (Short Term Rental Accommodation) register and pay a nominal fee. 

When it comes to monitoring the number of days in a year a property is rented, a client said on the phone last week, ‘Yeah, but who is going to check up on that?’

We said, ‘Ýour neighbours.’ 

Not many people like living next door to a ‘party house’, so many neighbours would be keeping a record of how many days the house next door is rented out and as soon as the cap is exceeded, they’ll be heading straight down to the local council.

And if the property is then delisted on the short term rental platform and it goes back to being a regular rental property, it can be a lot to unwind.

A closer look at hosted properties

But let’s talk about hosted properties, those ones where a client is renting out some rooms to make ends meet.

People have rented out rooms in their properties or taken in boarders forever, so it’s nothing new. In many cases, that income was incidental and not declared.

But short term rentals are now much more lucrative and there is no getting away from declaring that income. In June this year, Airbnb sent an email to all hosts telling them that they were passing on income data of hosts to the ATO. The ATO have said they are keen to capture as much of this as possible, so it’s important to make sure that short term rental income is recorded and reported accurately. 

If income is forcibly declared, deductions might as well be claimed. Accountants will likely work out a percentage to claim of council rates, strata fees, insurance etc based on the lettable area of the property taking into account shared spaces. 

When we do a Depreciation Schedule on a hosted Airbnb, we do it at 100% unless advised otherwise – and very rarely do clients know what percentage of other deductions an accountant is claiming. If you refer a client to us, feel free to tell us what percentage you would like us to use. 

Furniture in Airbnb properties

Living room furniture in an Airbnb property that may be able to be depreciated as brand new furnitureThis is where it can get tricky.

Many clients think that when they rent out their furnished property, they can also depreciate their furniture – all their furniture. A friend has often told them this.

But as you would know, much like the fixed assets in the property, if the furniture is second hand they can’t claim depreciation on it. The depreciation on that furniture needs to be deferred. Only furniture purchased brand new for rental purposes can be claimed

In these cases, there will be a mix of furniture in the Depreciation Schedule – some being depreciated, and some being deferred.

CGT complications

Then there is the potential Capital Gains Tax liability. 

This is something not on any client’s radar, but it will be on yours and you’ll have to advise your clients.

It’s also on the ATO’s radar. Interest payments to banks for investment loans is easily accessible and as mentioned above, the short term rental platforms have been directed to share income data with the ATO. 

Ideally, your clients will share their plans before they start renting out rooms or renting out a whole property and moving back in with mum and dad, but probably not. 

Clients will come to you after renting out all or half their apartment for a year or so and you’ll have to break the news to them that there could be CGT consequences for them down the track. 

We mention the potential issue to clients who share their intentions with us and suggest they chat to their accountant, but often they speak to us after the fact, too. We’re always happy to talk to your clients and bring to bear our 20 years of experience in depreciation matters.

Has this article reminded you about a client’s investment property?

Make a no-obligation enquiry and rely on our 20-plus years of experience in estimating depreciation returns.

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