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.
2. What happens if the business you get is bad (or dangerous)?
A few years ago who would have ever thought to invite strangers into our home to stay? Really? People are generally nice but what about the one drug addicted yobbo who trashes the place and drinks your Grange collection?
3. How much tax will Air BnB cost you?
Unlike most accountants I want all my clients to pay tax and lots of it. The reason is simple, because if you are paying tax and I have done my job then you will also be making a lot more money than the bloke who is simply focussed on not paying any tax. So with Air BnB what sort of tax risks will you encounter?
You will certainly face an Income Tax liability on any profit you make from your Air BnB business. The profit will be the income you receive less any tax deductible costs you have incurred in making that income. So for example, any bank fees will be deducted off your income as will the costs of advertising and replacing linen etc that is used in your business. You will not be allowed to deduct the cost of furnishing the property or any costs incurred while the property was not available for rent. The latter is important because you may only have the property available for a few weeks of the year so your deductions may be limited.
Once you have worked out what your likely profit is going to be from your Air BnB venture you should then consider who is earning the income?
It may be possible for the income to be earned wholly by your adult daughter, sister, Uncle Arthur, or anybody who has a low marginal tax rate and doesn't earn any other income. They would therefore pay a lower tax rate than Mum who has a high flying corporate job earning over $200,000 per annum. You may also be able to interpose a company or trust to minimise the tax payable on the income. This is where I come in! While I want my business clients to be paying more tax, I want their rate of tax to be as low as it legally can be, and making the correct structural decision at the beginning of your venture can greatly enhance that minimisation strategy.
Please let me know if you want more information and I will send you our checklist of different business structures.
4. What about those nasty surprises?
This is where you can really stuff up with the Air BnB model. If you rent out a room in your own private home then you will lose any Capital Gains Tax exemption for that part of your home. That may mean that when you sell your house in a few years you find you have an unexpected taxable capital gain. Going back to what I said above, if the gain is taxable to Mum and she is still earning over $200,000 that cost could be quite high indeed.
Now I am not saying that's a reason not to do Air BnB in your private home. Just understand that there may be implications beyond the period you are actually renting the property and those implications could be costly.
So what is the answer?
Talk to me first. A 30 minute chat will cost very little and might end up saving you thousands or tens of thousands in unnecessary tax.
This is just a brief summary to make you aware of a couple of the issues to consider before you embark on your Air BnB journey. If you would like specific advice for your situation just give me a call on (07) 54391600 or CLICK HERE to make an appointment with one of our qualified advisers.