Airbnb and the main residence exemption

Question

This question relates to renting out our apartment while travelling for work.
My husband bought the apartment in the eastern suburbs (with mortgage) in 2006 that is in his name. My husband runs a medium sized not-for-profit company that puts on cultural events in Sydney, interstate and sometimes overseas. He also has a tour company that takes cultural tours to various countries overseas, taking 3 or 4 tours annually.

I am self employed and work in the area of design. I have projects in NSW and WA, but also do some work for my husband’s cultural events company and do quite a lot of work for the tour company.
We spend probably 6 -12 weeks travelling for work both interstate and overseas each year and I try to rent our apartment out through AirBnB while we are away. Neither of us earns a large income and mine can fluctuate a great deal, I am also about to have our first child so will not be earning anything for the next 6 months or so. If we are travelling for work purposes are we able to rent out our apartment during this period without incurring capital gains tax? If we are only renting out our apartment in these circumstances are there other tax implications we should be aware of?

Answer

Normally when you rent out your home in your absence section 118-145 would allow you to continue to cover it with your main residence exemption. Certainly people who rent out part of their home while they are still there lose their main residence exemption on that part of their home because it has been used to produce income. If you are not there at all section 118-145 could work in your circumstances. But note the leading sentence at the start of this section of the legislation:

118-145(1)

If a *dwelling that was your main residence ceases to be your main residence, you may choose to continue to treat it as your main residence.

The ATO are considering that maybe the property doesn’t cease to be your main residence while you are absent just for a holiday. This section has the heading “Absences” so you would think you only have to be absent but headings are a guide and do not actually make up part of the law.

Anyway in light of the popularity of Airbnb the ATO are having a closer look at the words “ceases to be your main residence” and considering that if you are away on holiday then maybe the dwelling does not cease to be your residence. I expect the same problem would arise when you travel for work.

This is just the word around at the moment. The ATO have not made any public announcement. Due to the uncertainty this has created I put in a private ruling request on the matter about a month ago. They are supposed to complete these with in 28 days, I have never know the ATO to meet that deadline. The ATO rang me last week saying they need an extension of time to answer as they still haven’t formed their policy. They say a few weeks but I would give it a couple of months.

My advice to you in the meantime is if you haven’t done this yet then hold off. If they do say it exposes you to capital gains tax it may not have been worth the little bit of rent you receive. Mind you I think there will be a public outcry.

I will certainly be letting everyone know as soon as I get an answer. Subscribing to our free newsletter is the most certain way of finding out how the ATO answer my ruling request. To do this go to the bottom right of this page http://www.bantacs.com.au/media-library/newsflash/

I will also post a comment on our facebook page https://www.facebook.com/BANTACSpropertypage/

Regarding the rest of your question yes your Airbnb income needs to go in your husband’s tax return just like a rental property and the expenses can also be claimed including a portion of the interest, rates, insurance, body corporate fees, repairs, electricity etc. Make sure you keep receipts for any expenses that relate to items used by your guests. You may even qualify for building depreciation if the property was constructed after 16 September 1987 but it may not be worth the cost of obtaining a quantity surveyors report. Ask the body corporate, if they can give you the records that will allow you to work out the actual cost of building your unit, you could use them to work out your building depreciation.

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