In today’s sharing economy, platforms like Airbnb have made it easier than ever to earn extra income by renting out a spare room or your entire home. While this can be financially rewarding, many Australians are unaware of the tax implications that come with these arrangements. Understanding your obligations can save you from unexpected tax bills and potential penalties down the track.
When you rent out all or part of your residential property through digital platforms, the ATO requires you to declare this income on your tax return. Keeping meticulous records of all rental income earned is essential, as is maintaining documentation of expenses you intend to claim as deductions. It’s worth noting that most property rental arrangements don’t constitute a business in the eyes of the ATO, even if you provide additional services like breakfast or cleaning. One area where many property owners get caught out is capital gains tax (CGT). While your main residence is typically exempt from CGT, this exemption can be partially lost when you rent out portions of your home. The reduction in your exemption is calculated based on the floor area rented and the duration of the rental arrangement. This is a crucial consideration if you’re thinking of selling your property in the future, as it could significantly impact your tax position. Interestingly, if you temporarily move out of your main residence to live elsewhere, you may still retain your full CGT exemption under certain circumstances.
When it comes to deductions, you can claim a portion of expenses related to the rented space, including council rates, loan interest, utilities, property insurance and cleaning costs. The deductible amount depends on both the percentage of the property being rented and the duration of the rental period throughout the financial year. Platform fees or commissions charged by services like Airbnb are often 100% deductible, providing some relief against your rental income. Record-keeping becomes paramount in this scenario. You’ll need to maintain statements from rental platforms showing your income, along with receipts for any expenses you plan to claim. Without proper documentation, you risk having legitimate deductions disallowed during an ATO review or audit, potentially leading to additional tax liabilities.
A word of caution: the ATO is watching
The ATO has intensified its focus on all aspects of the sharing economy, particularly short-term rental arrangements. The ATO has sophisticated data-matching capabilities with third-party platforms like Airbnb. This means they can identify discrepancies between what’s reported on your tax return and what the platforms’ records show. With this sophisticated data-matching program in place, failing to declare your sharing economy income is increasingly likely to trigger ATO scrutiny.
Don’t risk penalties and interest charges that could significantly impact your financial wellbeing. Navigating the complex tax implications of property rentals can be challenging, even for the most diligent property owners. To ensure you’re meeting all your obligations and maximising your legitimate deductions, it’s worthwhile consulting with a qualified accountant. They can provide personalised advice tailored to your specific situation, help you establish proper record-keeping systems, and ensure you’re fully compliant with the latest ATO requirements.
Speak to one of our accountants if you have any questions about the changes in tax for 2025.
