Australia’s pristine beaches, picturesque landscapes and impressive flora and fauna are just some of the reasons people consider it one of the world’s best places to live and visit.

Investing in Airbnb property has become an increasingly popular option. With over 100,000 Airbnb listings and thousands more across other short-stay accommodation sites, holiday rentals are taking the country by storm.

Holiday rentals make for attractive investments; many locations are enticing year-round, they’re popular for both domestic and international travellers, and they hold lucrative tax depreciation deductions.

Investing in Airbnb property or other holiday rentals is different to typical residential housing and often involves different customs and expectations for tenants and property owners

In this article, we explore the following:

• What is short-stay accommodation and how does it work?
• Why invest in a holiday rental?
• Important things to keep in mind
• Depreciation eligibility
• How to maximise deductions

What is short-stay accommodation and how does it work?

Short-stay accommodation is typically self-contained apartments or houses which are rented for short periods and are available to be booked at short notice with no lease obligations.

Most holiday rentals will have a per-night fee, although it’s not uncommon for these properties to also have leases available, more so recently due to historically low rental vacancies.

Because leases aren’t used in short-stay accommodation, guests may be required to sign a contract or rental agreement depending on the duration of stay and the property owner’s preference. In most cases guests won’t be required to sign any type of contract – but may be asked to pay a deposit. In other cases, guests aren’t required to sign any type of agreement or contract.

Why invest in a holiday rental?

Holiday rentals generally offer more flexibility and may be the ideal choice for owners who also want to occupy their investment property occasionally.

Holiday rentals generally yield higher daily or weekly rents than long-term leases due to price adjustments based on the duration of stay, maintenance requirements, number of guests, season and local events.

Holiday rentals will receive more regular maintenance and cleaning which can improve the longevity of assets and reduce repairs and the need for improvements.

Because these properties are income-producing, they generate significant tax deductions including depreciation.

Costs such as advertising, repairs and maintenance, property management fees (including Airbnb fees), council rates, insurance costs, interest on investment loans and land tax are fully deductible for the periods the property is income-producing.

Important things to keep in mind

Holiday rentals are often managed by local property managers, however, in Airbnb properties, it’s a combination of professional and self-management. For instance, Airbnb manages bookings and provides host and guest assistance, however, everything else is ultimately the owner’s responsibility. Types of responsibilities can include finding staff to upkeep the property or doing it yourself, organising repairs and maintenance, being on call 24/7 in case of emergencies, preparing the property for the next tenant and some administrative duties.

Because Airbnb properties and holiday rentals are often suitable for a specific cohort, there may be vacancies outside of peak periods, more so in areas with seasonal attractions such as snow or properties near the beach.

While utility fees are generally covered by income, it’s important to be aware that these costs are the responsibility of the owner and don’t stop during vacant periods.

Owners who occupy their holiday rental will not receive rental income and total tax deductions will be reduced to account for those periods. Some investors choose not to occupy their holiday rentals during peak times or stay when the property is vacant to avoid missing peak rental income.

All rental properties require advertisement, however, because holiday homes are typically consistently advertised, these fees will be higher. On a positive note, all costs incurred to advertise an income-producing property are tax deductible.

Depreciation eligibility

Properties used to produce an income are eligible for depreciation deductions.

Owners are eligible to claim depreciation deductions for qualifying assets under two groups. Capital works deductions (Division 43) are claimable on the property’s structure and permanently fixed assets, and plant and equipment depreciation (Division 40) is claimable on the easily removable or mechanical assets.

Because holiday rentals are normally furnished by the owner, depreciation deductions are available for qualifying furnishings, which can boost yearly depreciation claims.

There are partial year deductions available in scenarios where properties aren’t available for year-round deductions. For instance, when owners occupy their property for part of the year or if the property hasn’t been owned for a full tax year.

This allows owners of investment properties to claim deductions for the times of the year the property is income-producing as a percentage. For example, if a property is occupied by a tenant 75 per cent of the year and owner-occupied for the remaining 25 per cent, then 75 per cent of the total yearly depreciation claim is claimable.

How to maximise deductions

The most effective way to maximise deductions is to order a tax depreciation schedule. A BMT Tax Depreciation Schedule is a detailed forty-year report illustrating all depreciable items in both categories.

Whether a holiday rental is rented out 100 per cent of the time or 20 per cent of the year, investors should contact a specialist investment property or Airbnb accountant to discuss the available depreciation deductions.