The Australian Taxation Office (ATO) has announced a new data-matching program targeting taxpayers earning income from the exploding popularity of short-term rentals available on platforms like AirBNB and Stayz.
Utilising information from online platform sharing sites matched to information from financial institutions, the ATO is targeting 190,000 individuals to make sure they have not failed to declare or under declared rental income or have over-claimed deductions. In effect, whatever data your sharing platform holds on you will need to match what you have declared in your tax return. And yes, the ATO can potentially check what is coming in and out of your bank account.
The ATO states that there is no such thing as a “rental hobby” so even a one-off rental needs to be declared.
But it’s not just the income the ATO are concerned about; deductions claimed are also in the spotlight. The ATO is concerned that some landlords are not only overclaiming – for example, claiming deductions for the whole house when only one room is rented out – but claiming deductions when the accommodation is not genuinely available for rent.
The records utilised by the ATO will be used to identify taxpayers not meeting their registration, reporting, lodgement, or payment obligations when renting out property on a short-term basis, complementing existing long-term rental information the ATO receives from State and Territory Bond Boards.
If you do offer short term rental accommodation, there are a few tax ‘ground rules’:
- Keep records (particularly if you are claiming deductions)
- Any income from rentals need to be declared – even if it is a one-off rental
- If you rent the property for income producing purposes, you can claim a deduction for the costs of earning that income
- Any deduction claimed needs to be in proportion to the length of time the accommodation was rented, and in proportion to what was rented. That is, if you rent one room, you can only claim deductions for the expenses incurred relating to that portion of the accommodation for the time it was available.
- Deductions are limited to the income earned where the accommodation was provided below market rates, for example to family and friends.
- This activity might impact on your ability to access the main residence CGT exemption on the sale of the property.
Around 2.1 million individuals reported rental income of $42 billion in 2016 with the figure rising each year. If you are targeted by the ATO, contact me immediately. You have 28 days to respond to an ATO enquiry seeking clarification before any compliance action is taken. If you are concerned you might be a target, consider Tax Audit Insurance to cover the costs of responding to an ATO investigation and make sure your paperwork is in place. The ATO penalty can be as high as 75% of the tax shortfall.