Ask Ban Tacs Question
Hi
My defacto partner and I are currently renting part of our house as airbnb, however the home loan is only in my name.
We want to move and rent the whole house. We thought we should set up a business partnership. Are we allowed to use the home loan that is in my name for interest deductions in the partnership? If so, would this need to be in a partnership agreement? If it were a limited partnership could I, as the person with the home loan be able to be the limited partner?
The house is in my name, my income is $67,000 and my partner’s income is $5,000.
Thank you very much for your help.
Answer
Unfortunately, just one Airbnb house is not enough to be considered in a business so any partnership will not allow you to distribute income to your spouse. The house would be considered an investment so the income is returned to the owner. Here is a bog where I discuss the details of business verses investment for various situations and tax concessions https://bantacs.com.au/Jblog/why-does-it-matter-whether-you-are-an-investor-or-in-business/#more-871
You can of course pay your spouse to manage and clean etc. It has to be reasonable market rates, your spouse could get an ABN and invoice you. From 1st July 2024 income between $45,000 and $200,000 is all going to be subject to the 30% tax bracket. So to minimise your tax rate as a couple all you need to do is get into the same tax bracket. In your case this will be trying to get your spouse’s income up to $45,000 from $5,000. I doubt you can justify $800 per week to manage and clean but nevertheless this will effectively mean a lot of the profit will move from your hands to your spouses and you will still have deductions for depreciation interest rates etc. because you are using your house to produce income. It might even be negatively geared on your side. Certainly not too bad an outcome and saving you the complications of a partnership, which of course won’t work until you have more than 3 properties that are short term rentals.
You have created a bit of a CGT problem for the house by airbnbing while you are living there. As you are not absent you cannot use the 6 years absence rule. Though you can when you move out. It is important that you are not listing it on Airbnb when you move out. You see if it is being used say half to earn income before you move out, then going forward for 6 years you can only cover half the property with your main residence exemption.
This blog will explain your current CGT position https://bantacs.com.au/Jblog/the-tax-and-record-keeping-consequences-of-holiday-rentals-such-as-airbnb/
