The sharing economy connects buyers (tenants) and sellers (landlords) through a facilitator who usually operates an app or a website. There are many sharing economy websites and apps. If you rent out all or part of your home through any of them you need to consider how income tax, the goods and services tax (GST) or any other tax applies to your earnings.
When you rent out all or part of your residential house or unit through a sharing economy website or app, 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.
There are a few simple rules rental property owners should follow to avoid making mistakes on your tax return.
First, make sure you declare all your income. While the sharing economy has changed the way we do business, it hasn’t changed the ATO’s definition of income. Any income from renting all or part of a house or unit needs to be declared, even if it is just a one-off. There is no such thing as a rental “hobby”.
Secondly, only claim deductions for the periods your property is rented out or is genuinely available for rent. And if you are renting part or all of your main residence, you can only claim deductions for the time it was actually rented. If a property is rented out below market rates, for example to family or friends, deduction claims are limited to the amount of income earned.
Remember, costs to major repair damage, defects or deterioration existing on purchase, or renovation costs, can’t be claimed as an immediate deduction. These costs are deductible over a number of years.
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.
If landlords wants additional information or wish to discuss issues related to online renting, please feel free to contact us.