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Air BnB - Know The Facts

Air BnB - Easy Money Just Laying Around Your Spare Room Right? 
 
So this Air BnB phenomena is amazing. I have heard of people taking long term leases on luxury houses for $3,000+ a week on the Gold Coast and then short term renting the place out for upwards of $2,000 a night through Air BnB. Now I am not suggesting you do that but if the property owner is aware and ok with subletting it seems to me to be a pretty good business model.

The question is though, how do you maximise your return on your Air BnB journey and also make sure you comply with the red tape.

The following points are just general in nature but if you require specific assistance then please give me a call on (07) 5439 1600 or book an appointment by CLICKING HERE
 

What's The Biggest Potential Problem?

Not an easy question to answer but I see two or three possible problems with Air BnB. The first two are general business problems not really specific to Air BnB but worth mentioning all the same:

1. What happens if you don't get enough business?

Every business needs to procure enough sales to make a profit or why are you bothering. There is nothing specific to Air BnB about this but it is still considering, especially if you are spending money to set your property up or, as in the example above, taking the financial risk of a long term lease.

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Buying a Business?

Happy New Year – Have You resolved to Buy a Business This Year?

Ok, so the true new year is 30 June as we all know. The party's over, hangovers recovered, and resolutions are to be implemented. If you have resolved to work for yourself and are thinking about buying a business then you need one piece of advice before you do anything else:

Buying a Business? Call Us FIRST – Please!!

Why Bother When we Just Won't Understand the Amazing Opportunity?

My job as an accountant is to ensure you get the right advice to understand the possible outcomes of your decisions. It is not to tell you whether or not you should buy that "once in a lifetime" business opportunity. Buying a business is an exciting decision to make and believe me, as an accountant with many grey hairs, I do understand your excitement.

Unfortunately I have also witnessed business decisions go horribly wrong and the common issue with many of those disasters is not getting the right advice at the beginning.

What is Due Diligence?

At the core of your business buying decision should be facts and analysis. This is called Due Diligence and is where a good accountant can help you get the best outcome by ensuring you make a fully informed decision.

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What is Depreciation AND How Does it Save Tax

Depreciation is technically defined as, "the reduction in the value of an asset over time".

But Property Values Rise Over Time?

Historically property values have risen over time and this has generated significant wealth for investors. Although there is no guarantee property values will continue to rise there is a good chance they will. So based on that assumption depreciation should be a negative amount, right?

Wrong! and here's why.

Property value increases generally occur as a result of land (the scarce resource) values increasing combined with the increasing cost to build new properties (inflation). Take for example a house that sits for years without any repair or maintenance on a vacant lot in the middle of the CBD. Quickly that house becomes run down and reduces in value even if the land increases in value by a greater proportion resulting in the overall property value going up. Although this is an extreme example it demonstrates the point that the building itself will depreciate over time. Remember also that there is no depreciation claim on the cost of the land.

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Repairs or Capital? The $64K Question.

So, your rental property needs a little bit of work. The question is whether that work represents a "repair" or an "improvement" for tax purposes. This might mean the difference between paying for your holiday from your tax refund or deferring your holiday for a couple of years so it is important to get it right.

What does the ATO Say?

The ATO has issued guidelines for helping work out whether an expense is  a repair or a capital improvement:

  1. Is the thing being replaced or renewed an "important part of the structure" of the building?
  2. Is the work merely restoring the function of something "without changing it's character"?
  3. Is the replacement thing "new and better" than the old one?
  4. Does the replacement thing have "considerable advantages" over the old one?

There is a theme in these guidelines relating to new and improved but let's face it, a new front door will generally always be "newer and better" then the old one and may have "considerable advantages" over the old one yet there is little doubt that replacing it is usually always a repair and the cost is therefore fully deductible.

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