What is Capital Gains Tax (CGT)?

Capital Gains Tax (CGT) is a tax you pay on the profit from selling an asset, including property. If you sell an Airbnb property and make a profit, that profit is considered a capital gain, and you may need to pay tax on it. The rules around CGT depend on whether the property is used as a primary residence or investment property.

Primary Residence vs Investment Property

The CGT treatment of your Airbnb property depends on how you’ve used it:

1. Primary Residence: If the property is your primary residence and you occasionally rent it out on Airbnb, you may be eligible for a CGT exemption. However, if part of your home is used for Airbnb, such as renting out a room or a granny flat, CGT may apply to the portion of the property used for income-generating activities.
   • Partial Exemption: If only a part of the property is used for Airbnb, a partial CGT exemption may apply. The portion of the home used for personal living remains CGT-free, while the part used for Airbnb will be subject to CGT when sold.
2. Investment Property: If the property is primarily used as an investment for Airbnb, CGT will apply when it is sold. The CGT is calculated on the difference between the purchase price (including any capital improvements or legal fees) and the sale price.

How to Calculate CGT on Your Airbnb Property

The Australian Tax Office (ATO) uses the following formula to calculate CGT:

• Capital Gain = Sale price – Purchase price (including expenses like renovations, legal fees, and other capital improvements).
• The capital gain is then added to your assessable income and taxed at your marginal tax rate.

If you’ve held the property for over 12 months, you may be eligible for a 50% CGT discount, which can significantly reduce your tax bill.

Important Note on GST and Income

It’s important to remember that the income you receive from renting out all or part of your home is considered residential income, which means you do not pay Goods and Services Tax (GST) on this income. This remains true even if you carry on another GST-registered enterprise. However, many of the expenses associated with running your Airbnb business, such as cleaning, maintenance, and supplies, do include GST. Understanding this distinction is key when managing your property’s financials.

CGT Implications for Your Airbnb Property

• Primary Residence with Airbnb Use: If only a portion of your home is rented through Airbnb, CGT may apply only to the part of the home used for income generation. The portion of the home used as your personal residence remains exempt from CGT.
• Full Investment Property: If the property is used solely for Airbnb or other income-generating purposes, you’ll be liable for CGT on the entire capital gain when the property is sold.

Consult a Tax Professional

Given the complexity of CGT laws, particularly with mixed-use properties, it’s important to consult a tax professional to ensure you’re calculating your CGT correctly and taking advantage of any available exemptions or discounts.

If It All Seems Too Hard, Inquire About Our Management Services

Managing tax obligations, CGT, and Airbnb operations can feel overwhelming. If you’re unsure where to start, consider inquiring about our management services. We help property owners navigate the complexities of Airbnb hosting while maximizing their profits and staying compliant with tax regulations.

Conclusion

While Capital Gains Tax (CGT) can apply to Airbnb properties, the extent depends on how the property is used. Whether it’s your primary residence with occasional Airbnb use or a full-time investment property, understanding CGT implications can help you avoid surprises when selling. If you need help managing your Airbnb tax obligations, book a free consultation or download our free eBook for insights on maximizing your Airbnb revenue.