Ask Paul: Should my sister rent out her house over Christmas?
My sister is thinking of renting her whole house out over the Christmas break for about three weeks when she goes camping.
I am concerned about the tax implications.
I have heard that people who rent out on Airbnb have to pay capital gains tax when they sell; or is this just when you rent out one room or when you do it for more than six years?
Also, if the house is rented out on a short-term lease on December 31, would it trigger land tax in Victoria? - Jane
Interesting question, Jane. I am an investment type, so this is not in my field of expertise, but being quite intrigued I have done some research and chatted to tax people with expertise in this area.
Personally, putting aside the obvious risks of damage to the property by guests and the effort to get it prepared, I reckon this is a cracking idea. In terms of tax, the income she gets will be taxable and must be declared. She can claim legitimate expenses in regard to the three weeks it is rented, for cleaning and so on. She can also claim three weeks running expenses of her home. She looks at the cost of running her home over 52 weeks, divides that by 52 and then multiplies by three to come up with a "proportionate cost" for the period it is let.
If she were to sell her home, the three weeks it is let would impact on the tax-free status of her principal home, but let's not get too anxious about this. If she owned it for, say, 20 years, or 104 weeks, a three-week let would mean potential capital gains tax on under 0.3% of the gain. Your sister can run the numbers on this, but in most circumstances it does not look like a deal breaker to me.
Finally, my advice is that Victorian land tax would not apply if a principal residence is rented for under six months. To keep the exemption, the absence must be temporary and the owner must return to their home within six years (and must have been residing in the property for a minimum of six months before the absence).
Here you have a curious amateur delving into an area outside his range of expertise, so please give the ATO a ring and confirm what I have been advised, or your sister's tax accountant will be able to answer this with ease. I must say, I did find your question highly relevant and it has improved my understanding of short-term lets. Thanks!