According to H&R Block, the Australian Taxation Office (ATO) has indicated that real estate investments will be an area it focuses heavily on this year, including the growing trend of people using short term rental platforms.
“The ATO have flagged that this year they’ll be taking a much closer look at rental properties and what people declare on their tax returns and that will include looking at people who are using platforms like Airbnb to rent out their properties,” H&R Block director of tax communications Mark Chapman told Your Investment Property Magazine.
“People need to understand that the ATO will go to the effort of identifying people who maybe using something like Airbnb and not declaring any income generated from that. The tax office has really sophisticated data matching capabilities to investigate people and the other thing is that Airbnb is on the internet. That means they just have to look at the site and all your information, your address, how much and how often the property is rented for is right there for them,” Chapman said.
According to Chapman, most people who don’t declare income generated off Airbnb rentals do so because of a common misconception.
“People often think their main job is what they should declare and anything they earn through something like Airbnb is just pocket money. There used to be a same thought about people using eBay, but it’s income that needs to be included on your tax return,” he said.
“The average person who uses Airbnb might bring in something like $4,000 to $7,000 a year. That’s a fair amount of money to be going undeclared each year.”
Chapman said the best way for property owner and investors to avoid issues with undeclared income from Airbnb is to keep accurate records and seek a second opinion if they’re unsure if something should be declared or not.
“The main thing people should do is treat it like their other sources of income and that means making sure you keep good records of it all.
“When you’re doing your tax return, take it all to your accountant and let them go over it and help you decide what does and doesn’t need to be included in your return.
“The ATO can hand down some pretty serous penalties as well; you could be hit with a fine of 25% - 75% of the tax that should’ve been paid, plus interest of 9%.”
While Chapman said keeping accurate records can help people deal with the more immediate tax issues, he also said it can prevent headaches in the future.
“A lot of people don’t realise that renting your house out through something like Airbnb can have capital gains tax implications if you ever want to sell your house.
“By renting your home through Airbnb, you could be putting your main place of residency exemption at risk and depending how long you’ve rented it out for you could have to pay CGT on 10% or 15% of your capital growth.
“If it comes to that, you want to have a clear idea of how long the property was available to rent so you know what sort of tax bill you might be looking at.”