Do you rent out a part of your home, or a holiday home, on Airbnb, Stayz or another sharing site? Perhaps you see this as a way of making a little extra income to help the household budget or to save for that holiday. But what you may not be aware of are the long-term tax implications of such a move, which may lead to a case of short-term gain causing long-term pain.

Reporting income

Unless a home was rented out to family members or under domestic arrangements that are not commercial, all income received needs to be included in your tax return. This is regardless of whether it was a long-term rental or a short-term rental.

Claiming deductions

Where you are only renting out a part of your home (ie a single room), say on Airbnb or another similar platform, you can only claim expenses related to renting out that part of the home. According to the ATO, a floor area method based on the area solely occupied by the renter as well as a reasonable amount based on their access to common areas should be used to apportion the expenses claimed.

In addition, where you use the room that is rented out in any other capacity such as storage, home office, or spare bedroom, then you cannot claim deductions for any expenses for the period the room is unlet. For example, heating and electricity costs received every quarter need to be apportioned based on the number of days the room was occupied and on the floor area basis to obtain the final deductions figure.

Selling your home eventually

As the ATO’s Deputy Commissioner for Small Business, Deborah Jenkins, has said:

“Just like running a business from home, once income is earned from a primary place of residence there are CGT implications. It is possible that if a property significantly increases in value, the amount of CGT owed may even be higher than the amount of income received.”

When it comes time to sell your home and you’ve previously rented it out, you won’t be entitled to claim the full exemption for capital gains tax. This is the case even if you’ve lived in the home as your main residence and only rented out one room for a short period of time. The calculation for the portion of capital gain that will not be exempt is complex and a qualified and registered tax adviser should be consulted.