If you are buying a home to turn into a bed and breakfast or converting your existing home, there are a number of tax tips you should keep in mind along the journey. Wondering what you need to know and who can help? Take a look:
1. B&B Income Must Be Reported to the Australian Taxation Office.
The Australian Taxation Office (ATO) requires individuals who rent out part of all of their home to report the rent received as income. This includes money you receive from renting out your home or rooms in your home to permanent renters, temporary lodgers, guests from sites such as AirBnB and anyone else who pays to stay in your home. Luckily, however, you don't have to charge goods and services taxes on the income you receive, so that helps to make the reporting process easier.
2. You Can Claim Associated Expenses on Your Income Tax Return.
Although you must report rental income, you don't necessary have to claim all of it as taxable profits. The ATO allows you to write off expenses related to your B&B. In particular, you can write off expenses related to buying furnishings, purchasing food for your guests' breakfasts and even the portion of your mortgage interest that is related to the rooms you are renting out.
3. Purchases Under $20,000 Can Be written Off Immediately.
As a B&B owner, the ATO allows you to write off business purchases for less than $20,000 in the year of purchase. If you need to offset your income or if you are just looking for financial benefits of large purchase, this taxation rule helps.
Note, however, that if you are using the purchase for both personal and business use, you can only write off the portion related to business use. For example, if you buy a used vehicle to transport guests to and from the airport but you also plan to use it for personal use, you should calculate the percentage of time you use it for business and the percentage for personal and then write off the corresponding amount.
4. A Quantity Surveyor Can Help With Asset Depreciation Schedule.
In addition to writing off assets you have purchased, you may also be able to write off some of the business-related items in your B&B as they depreciate over time. The list is long, and it can include permanent and temporary fixtures in your home such as hot water systems or window treatments. A quantity surveyor can help you appraise those items and figure out their depreciation schedule. This can help significantly in lowering your tax burden.
5. Capital Gains Requirements Vary When You Sell Your Home.
Normally when you sell your primary residence, you don't face capital gains tax on money earned through the sale. However, when you sell a home that has been used as a B&B or for any other commercial purposes, you have different capital gains requirements. An accountant can help you crunch the numbers in your situation.
Share31 August 2016
When I first took over the admin of the company, the records were a mess. I got them mainly sorted out. Then last year my worst nightmare came true, and we got a back audit on taxes from before my time. It was a lot of work, but luckily we have a great accountant who helped us to sort out all of our records and get through the audit. Now we have a bit of tax to pay back, but I know our records are in better order, and if we get audited again, we'll be fine. This blog is all about tax services and auditing.