Renting out your property during the Commonwealth Games

With the Commonwealth Games fast approaching, savvy property owners are considering renting out their residential property to make extra income during the games.

Example:

Michelle owns a house in Southport. She decides to rent the house out for the Commonwealth Games for a period of 4 weeks (28 days) at the rate of $500 per night. Michelle will earn $14,000 in just 4 weeks. As you can imagine Michelle is ecstatic at the prospect of the additional income for her family

But what are the tax implications…

When you rent out all or part of your residential house or unit through a sharing economy website or app, like Airbnb, Stayz or similar, you:

need to keep records of all income earned and declare it in your income tax return
need to keep records of expenses you can claim as deductions
don't need to pay GST on amounts of residential rent you earn.

If you are carrying on an enterprise renting out commercial residential premises you will have different income tax and GST obligations.

If you rent out all or part of your house or unit, the payments you receive are assessable income. This means:

you must declare the income in your tax return
you can claim deductions for associated expenses where applicable (keep reading for further clarification)

When completing your tax return you must declare the income received, and can claim associated expenses for the income year, as rental income in your tax return.

Remember to only claim for the time the rooms are being rented.

Please note: You may also need to pay capital gains tax (CGT) when you sell the house or unit. Even if the house or unit is your main residence, renting out any part of it usually means losing part of your CGT main residence exemption.

What Deductions can you Claim

Common expenses include:

fees or commission charged by the facilitator or administrator
council rates
interest on a loan for the property
electricity and gas
property insurance
cleaning and maintenance costs (products used or hiring a commercial cleaner).

Whether all or part of the expense can be claimed will depend on:

the number of days you rent out the house or property during the year
the portion of the property you have rented out (for example, a room or the whole property)
whether you use the home or part of the house for personal use when it's not rented out.

Renting out part of a home

If you are only renting part of your home, for example a single room, you can only claim expenses related to renting out that part of the house. This means you can't claim the total amount of the expenses – you need to apportion the expenses.

As a general guide, apportion your expenses based on the floor-area solely occupied by the renter (user), and add that to a reasonable amount based on your guest's access to common areas.

You can only claim expenses for when the room was rented to a client.

Renting out your Main Residence on an Occasional Basis

If you rent out your home (whole house or unit) on an occasional basis through the sharing economy eg during the Commonwealth Games, you can claim the portion of expenses relating to when you rented it out.

This may apply if you rent out the house or unit when you're away for a period of time, or if you vacate the house or unit to allow paying guests to stay.

In this case, the total expenses you can claim reflect the portion of the financial year the house or unit was rented out.

You can claim 100% of any expenses that are only related to renting out the house or unit to paying guests.

Example: renting out your main residence on an occasional basis eg Commonwealth Games

Back to Michelle…

We know that Michelle owns a house in Southport. That she decides to rent the house out for the Commonwealth Games for a period of 4 weeks (28 days) at the rate of $500 per night.

Michelle lists her house as available for rent on a sharing economy app for paying guests. During the Games Michelle and her family decide to live with her mother Pam.

Because the house is Michelle’s main residence, and her family only vacates the place during the Commonwealth Games period she can only claim expenses based on the time that it was rented out.

Michelle will rent out her house for 28 days. This means she can only claim 7.67% of expenses (28 ÷ 365 × 100).

Michelle claim 100% of the expenses associated solely to renting out the unit, such as the facilitator’s commission or administration fee.

As Michelle is the sole owner of the property Michelle will need to declare the $14,000 on her tax return (less any applicable expenses).