Holiday homes and short‑term rentals like Airbnb have become a popular way for Australians to build wealth, generate passive income and make use of properties they already own. But while the income can be attractive, the tax rules are often misunderstood – and getting them wrong can be costly.
Whether you rent out a beach shack a few weeks a year or operate a full‑time short‑stay investment, understanding how tax applies is essential. Here’s what every property investor needs to know.
Is Airbnb income taxable?
Yes. Any income you earn from renting out a holiday home or listing it on platforms such as Airbnb, Stayz, or Booking.com is assessable income and must be declared in your tax return.
This applies regardless of whether:
- The property is rented out only occasionally
- The income is paid via an online platform
- The funds are deposited into a separate account
- You consider the property primarily “for personal use”
The ATO receives data directly from sharing‑economy platforms, so undeclared income is increasingly easy for them to identify.
What expenses can you claim?
The good news is that you can generally claim deductions for expenses incurred in earning rental income. Common deductible expenses include:
- Interest on loans used to purchase the property
- Council rates and water charges
- Insurance
- Property management and platform fees
- Cleaning, linen and laundry costs
- Utilities such as electricity and gas
- Repairs and maintenance
- Depreciation on eligible assets (subject to current rules)
However, the key rule is apportionment.
Editor’s note: The ATO has recently issued draft guidance warning that some holiday homes may be treated as “leisure facilities”. In those cases, certain ownership/holding costs can be denied under tax law unless the property is mainly used (or held) to earn rental-type income. This goes beyond simple day-count apportionment, so owners who mix private stays with short-term renting should review their position carefully.
Apportioning expenses for private use
If the property is used both privately and for rental purposes, expenses must be split based on actual use.
For example:
- If the property is rented for 120 days, used privately for 60 days, and vacant for the rest of the year, only the portion relating to rental days is deductible.
- Days when the property is genuinely available for rent (at market rates) generally count as income‑producing days.
Keeping accurate records, including booking calendars and evidence of market pricing, is critical.
Capital gains tax (CGT): The hidden trap
One of the most significant tax issues with holiday homes and Airbnb properties is capital gains tax.
Main residence exemption
If the property is not your main residence, any capital gain on sale will generally be subject to CGT (with the 50% discount available if held for more than 12 months).
If the property is your main residence and you rent it out, the situation becomes more complex:
- Renting out part or all of your home can reduce or eliminate the main residence CGT exemption.
- You may need to apportion the capital gain based on the period and extent of income‑producing use.
The six‑year rule
Under the six-year absence rule, you may continue to treat your former home as your main residence for up to six years while it is rented out – but only if you do not treat another property as your main residence during that time.
This rule can be powerful, but it must be applied carefully and consistently.
Additionally, the six-year clock can “reset” if you move back in and later move out again (then a new period can start).
Depreciation and furnishings
Holiday homes often contain furniture, appliances, and fittings that can claim depreciation. However, depreciation rules have tightened in recent years.
If you purchased the property after 9 May 2017:
- You generally cannot claim depreciation on second‑hand plant and equipment (such as used furniture or appliances)
- You may still claim capital works deductions (building depreciation) if eligible
A quantity surveyor’s report can help identify what is and isn’t deductible.
GST: Usually not, but sometimes yes
Most residential rent is input‑taxed for GST purposes, meaning:
- You do not charge GST on rent, and
- You cannot claim GST credits on expenses.
However, some short‑stay accommodation may be treated more like commercial accommodation, particularly where:
- Stays are very short,
- Services resemble those of a hotel or serviced apartment, and
- Turnover exceeds the GST registration threshold.
This is a specialist area and requires careful advice. Incorrect GST treatment can be expensive to unwind.
Land tax and state‑based issues
Land tax is a state and territory tax, and short‑term rentals can have different implications depending on location.
In some states:
- Different land tax thresholds apply to investment properties
- Exemptions for principal places of residence may be lost
- Additional levies or registration requirements apply to short‑term accommodation
These rules change frequently, so it’s important to check the position annually.
Record‑keeping: Your best defence
Good records are essential. At a minimum, keep:
- Booking statements from platforms
- Bank statements showing rental income
- Invoices and receipts for expenses
- A diary or log of private use
- Loan statements and settlement documents
Records should generally be kept for at least five years, and longer where CGT is involved.
Common mistakes to avoid
Some of the most frequent issues seen with holiday homes and Airbnb include:
- Claiming 100% of expenses despite private use
- Failing to declare income earned through online platforms
- Misunderstanding the main residence CGT exemption
- Ignoring land tax and local council requirements
- Assuming Airbnb income is “just a side hustle” with no tax consequences
Conclusion
A holiday home or Airbnb can be a rewarding investment, financially and lifestyle‑wise, but the tax consequences are far from simple. Decisions you make today about how the property is used, structured, and recorded can have long‑lasting effects, particularly when it comes time to sell.
Before listing a property or changing how it’s used, it’s worth getting tailored tax advice. A short conversation now can help you avoid unpleasant surprises later – and ensure your holiday home remains a source of enjoyment, not stress.
Image by Andrea Davis on Unsplash
