The rise of platforms like Airbnb has made short-term rental property an increasingly popular investment strategy. With the potential for higher yields than traditional long-term leasing, it's no wonder many landlords are turning their homes, units, or even spare rooms into income-generating short stays.
However, alongside the promise of extra income comes a host of tax considerations, particularly when it comes to depreciation. Understanding how depreciation works and how it applies to short-term rentals can help Airbnb landlords legally reduce their taxable income and maximise their deductions.
What is Depreciation?
Depreciation is a tax deduction that reflects the gradual decline in value of an asset over time due to wear and tear. For property investors, this usually applies to the building structure and its fixtures and fittings (also called plant and equipment). In other words, you may be able to claim a portion of your property's value back each year as a tax deduction, even if the property is increasing in market value.
Depreciation does not involve spending cash; it's a “non-cash” deduction. That’s why it’s a popular tool for reducing taxable income without affecting cash flow.
Airbnb Properties are Still Investment Properties
Even though Airbnb is used for short-term stays, from a tax perspective, your property may still be considered an investment if it's used to generate income. This means depreciation rules generally apply in the same way as they would for a traditional rental, with some added complexity.
The key is that the property must be available for rent and used in a way that genuinely earns income. Occasional use by the owner or lengthy vacancy periods could impact your claim. Similarly, if you’re only renting out part of your home (say, a guest room), only a portion of the depreciation may be claimable.
Two Types of Depreciation for Airbnb Properties
There are two main categories of depreciation deductions available for Airbnb properties in Australia:
1. Capital Works Deductions (Division 43)
These relate to the structure of the building, such as walls, floors, roofs, and built-in kitchen cabinetry. Generally, residential properties built after 1987 are eligible for a 2.5% per year deduction over 40 years.
If your property is older, you may not be able to claim capital works unless substantial renovations were completed after this date.
2. Plant and Equipment (Division 40)
This includes removable or mechanical assets like ovens, hot water systems, carpets, air conditioners, and blinds. The depreciation rate for these items varies depending on the asset’s effective life as determined by the ATO.
However, as of legislation passed in 2017, second-hand residential properties (bought after May 9, 2017) cannot claim depreciation on previously used plant and equipment items. This rule was introduced to prevent double dipping and mainly affects properties bought with existing fittings.
That said, if you buy a new asset for your Airbnb, say, a new washing machine or a new couch, you can claim depreciation on it.
Apportioning Depreciation for Mixed Use
Many Airbnb hosts only rent their property out for part of the year, or they rent a portion of the home while also living in it. In these cases, depreciation deductions must be apportioned according to the percentage of time or space the property is used to produce income.
For example, if your Airbnb property is rented 180 days of the year, and used privately the rest of the time, you can only claim 50% of the annual depreciation. Similarly, if you’re renting out one room in a four-bedroom house, you might only claim 25% of eligible deductions for shared assets.
Keeping detailed records is critical, including booking calendars, floor plans, and receipts for purchases.
Get a Depreciation Schedule
To maximise your depreciation deductions and ensure accuracy, it's strongly recommended that Airbnb landlords obtain a tax depreciation schedule from a qualified quantity surveyor. This report details all the depreciable assets within your property and breaks down the annual claimable amounts over time.
A good schedule is valid for up to 40 years and is a one-time investment that can lead to thousands in tax savings annually. It can also ensure that your claims are compliant with ATO requirements.
Final Thoughts
Short-term rentals like Airbnb can be lucrative, but they come with specific tax implications that shouldn’t be overlooked. Depreciation is one of the most powerful tools available to landlords to offset income and boost after-tax returns.
By understanding what can be claimed and getting the right professional advice, you can ensure that your Airbnb business is not only profitable but also tax-efficient. Don’t leave money on the table; make depreciation work for you.
Comments