Internet based business – Airbnb (part 2)
Exercise caution if Airbnb accommodation if provided on a larger scale
Depending on the degree of amenities provided and the way in which the Airbnb host operates, it is possible that the supply of accommodation could be considered a supply of accommodation in ‘commercial residential premises’. In this case, the supply is taxable for GST purpose in circumstances where the host is registered for GST or required to be registered for GST (i.e., where the entity has met the $75,000 ‘turnover test’ refer to Division 188).
Among other things, the definition of ‘commercial residential premises’ includes a hotel, motel, inn, hostel or boarding house, or anything similar. In GSTR 2012/6, the ATO provide some useful examples of when a ‘bed and breakfast’ has the characteristic of commercial residential premises. The examples illustrate that the following factors (combined) are significant in finding that a supply of short-term accommodation is a supply of commercial residential premises:
- The accommodation is provided on a multiple occupancy basis (e.g., a B&B where there are a number of rooms available for different guests at the one time).
- The rooms are cleaned, linen is provided and breakfast is provided (e.g., in a dining room). The more services provided, the more likely it is to be commercial residential premises.
- A room is set aside for reception/office.
Importantly, in GSTR 2012/6, the ATO are clear that a single home let on a short-term basis (as is typical scenario for many Airbnb hosts) is not a supply of commercial residential premises.
What are the income tax consequences for Airbnb hosts?
As a starting point, note that, the vast majority of Airbnb hosts would not be considered to be carrying on a business of providing Airbnb accommodation
(note: these notes proceed on the basis that the Airbnb host is not carrying on a business). In any case, regardless of whether the host is carrying on a business, the Airbnb income is ordinary income and is taxable as follows:
- The gross Airbnb income must be included in the assessable income of the host (i.e., the total listing cost including the 3% service fee must be included in assessable income); and
- The host can claim a deduction for substantiated expenses relating to the provision of Airbnb accommodation including, for example, the 3% service fee, holding costs (e.g., interest, rates and land tax) and non- holding costs ( utility costs, repairs and decline in value).
In some cases the deduction available to an Airbnb host may be reduced (e.g., where the expenses need to be apportioned to remove a private element or where the Airbnb accommodation was only provided for the part of the year) or denied (e.g., during a period in which the Airbnb accommodation was not genuinely available for rent).