Short-Term Rentals: What You Need to Know About Tax Obligations

In today’s sharing economy, platforms such as Airbnb have made it easier than ever to generate additional income by renting out a spare room or your entire home. However, many Australians are still unaware of the tax obligations that come with short-term rental arrangements.

If you rent out part or all of your residential property through a digital platform, the Australian Taxation Office (ATO) requires you to declare this income in your annual tax return. To comply, it's crucial to maintain detailed records of all rental income received, along with receipts or evidence for any expenses you plan to claim as deductions.

It’s important to note that, in most cases, the ATO does not treat short-term property rentals as a business— even when you provide additional services such as cleaning or breakfast. However, this doesn’t exempt you from compliance requirements.

Understanding Capital Gains Tax Implications

A key area where short-term rental hosts often run into issues is capital gains tax (CGT). While your main residence is typically exempt from CGT, renting out part of your home can reduce that exemption. The ATO calculates the CGT impact based on the area rented and the duration of the rental period. If you later decide to sell the property, this partial loss of exemption can significantly affect your final tax position.

What Expenses Can You Claim?

You may be eligible to claim a proportion of expenses related to the rented area of the property. These can include:

• Council rates
• Mortgage interest
• Utilities
• Property insurance
• Cleaning services
• Platform fees and commissions

The deductible portion will depend on the percentage of the property rented and how long it was made available for rent during the financial year. Platform fees, such as those charged by Airbnb, are typically fully deductible.

Documentation Is Key

To substantiate your claims, you must retain income statements from platforms and receipts for all claimed expenses. Failure to do so could lead to deductions being disallowed during an ATO audit, resulting in additional tax and possible penalties.

ATO’s Increased Focus on Short-Term Rentals

The ATO is ramping up its surveillance of short-term rental income. Using advanced data-matching tools, it now collaborates directly with digital platforms to identify inconsistencies between your reported income and what the platforms have recorded.