It was Benjamin Franklin who told us that nothing is certain in this world except death and taxes. The Australian Tax Office agrees and has now decided to go after property owners using sharing sites like Airbnb and Stayz for avoiding tax. Since this activity has some practitioners in the Northern Rivers, it may be a good time to take a closer look at what is afoot.
The Tax Office’s challenge here is it needs to create tax rulings based on situations that are undefined or informal like the terms of engagement with Airbnb. If the Tax Office does not understand the terms under which citizens become single-serving subcontractors for these companies, they can’t lay down appropriate tax obligations. There are two areas that the ATO is now interested in. One is where landlords are not declaring holiday let income and the other is where holiday home owners are overclaiming on expenses and deductions.
Accountant and Deakin University lecturer Adrian Raftery says the rules are clear – any rental income needs to be declared as assessable income in your return and you’ll need to pay tax on it. To those who feel the income is so little they needn’t bother, Raftery says: “Something like this is advertised on the net so the ATO is more likely to find out about it – it’s not a cash economy. Guests are paying electronically, which makes it easier to track down.”
What’s the penalty if you are caught? “It depends on the severity. If the ATO views it as fraudulent, it can impose penalties of up to 75 per cent surcharge on the shortfall.” That means the outstanding amount plus a 75% penalty.
The ATO will not be further concerned about people who permanently holiday-let their property and their accountant is already including it as income. One would assume that this activity falls under the usual rules and regulations of keeping an investment property. However, many home owners take up the opportunity of letting their own property and/or studio in time of high demand like summer holidays, Easter and during popular festivals. Most would assume that this is a benign practice and is OK to stay under the radar. The Internet booking system makes under the radar a little more hard to complete.
Another rort under investigation is people who claim they have a holiday let property and never actually rent it, or very little, in order to claim tax deductions and depreciation expenses. The ruling is clear that the expenses claimed cannot exceed the income received.
Another complication for part time holiday letters is including payment of rental income in your annual tax returns. This may impact your capital gains exemption on primary residents if you ever go to sell your home. It will be best to contact your own accountant the next time you file if you are involved in this activity. Generally people are suggesting that doing the right thing as far as disclosure is not that onerous and will be better than getting caught further down the line.