At the heart of the nation’s housing crisis is a tax rort that sees thousands of liveable homes left unoccupied, Tim Evans reports.
The worst housing crisis in living memory is being fuelled by Airbnb owners, and other holiday rental groups, inappropriately or perhaps wrongfully claiming 100 per cent of running costs on properties that are actually rented for a fraction of the year.
Many owners of these properties claim expenses, including interest payments, during the entire year, even though the property may only be rented out for less than a fifth of that time.
This results in a disparity between the number of days the property generates income and the number of days expenses are claimed.
Effectively the proportion of expenses being claimed results in a far greater tax deduction for the property owner than would be the case if the expenses were tied to the number of days the property is actually rented out.
Owners of holiday and Airbnb properties who make their properties “available to rent”, even though it may only be rented out for 4 to 8 weeks a year and claim a full year’s worth of tax deductions for expenses against other income, are effectively rorting the tax system.
Taxpayers are subsidising big property investors
This means that the average taxpayer is subsidising owners of these properties through the tax system, by offsetting losses made on the rental properties against their other assessable income.
There are two additional impacts from this:
- It makes the cost of owning such properties cheaper for the owners, which pushes property prices higher; and
- Because owners claim a tax deduction for 100% expenses incurred during the year, regardless of how many days the property is actually rented out during the year, there is less incentive to lower the rent on the property, which in turn reduces the number of properties available for the long term rental market.
Is the Tax Office enforcing?
A reading of the tax guidelines on this issue from the ATO’s website, suggests that the application of the law is not being correctly applied. The ATO’s own guidelines on this issue states:
“You must rent out or make a genuine (honest) effort to rent out your rental property or holiday home to be able to claim a deduction for expenses you incur.”
Most holiday rental and Airbnb properties are offered at rates far higher than the general long term rental market can afford, meaning that such properties are not “genuinely” accessible to ordinary people looking to rent on a long term basis. This has the impact of reducing the number of properties available in communities to rent on an affordable long term basis. It directly results in higher rental prices, as there are fewer “genuinely” affordable properties available for long term rental.
A fraction of the year
Effectively, many owners of holiday rental and Airbnb properties only rent their properties out for 4 to 8 weeks per year, 7.7% to 15.4% of the year, however they claim 100% of the expenses. This results in a significant over-claiming of expenses and very often a loss being incurred, which in turn is used to reduce income generated elsewhere, generally from personal salaries. In turn this results in a significant benefit to the owner by way of the payment of lower taxes.
Many of these properties are 100% geared, with other personal assets, such as the owner’s house, used as additional collateral to meet the security ratios required by banks, therefore maximising the loss on the rental property and by extension the tax benefit to the owner. A summary table of 3 scenarios is shown below:
The impact of this is significantly felt in the regions, both up and down the coast and in country areas, where previously available rental properties are now no longer available at rates affordable to ordinary people. It also has an impact in the major towns and cities.
Research conducted last year by the University of Queensland revealed there were 251,000 homes in Australia listed on short-term stay websites listed in September.
The simple fix
It would be a relatively simple fix by the Government and Australian Tax Office to clarify that owners of all rental properties can only claim a tax deduction for expenses incurred from a rental property for the proportion of the year that the property is actually rented out. In other words, the act of making the rental property “available to rent” would not be accepted as qualifying for a tax deduction.
This will not solve the rental crises by itself, but it will ensure that ordinary taxpayers are not subsidising owners of holiday rental/Airbnb properties. This in turn will cause owners of holiday rental and Airbnb properties to consider if they should make their properties available for the long-term housing rental market. Even if only 20% (50,200) of holiday rental and Airbnb owners did this, it would have a significant impact.
Owners of course will have the choice to maintain the status quo, which will be their right, however they will no longer receive a tax deduction for the period during the year where the property is not rented out, which in itself will be a benefit to ordinary taxpayers and the Federal Budget.
Byron Bay blue between “Airbnb mafia” and grassroots groups highlights costly housing crisis
