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What laws apply to an
Airbnb host in Australia?
Airbnb is a well-known online accommodation booking website.
Founded in August 2008 in San Francisco, California,
Airbnb describes itself in this way:
Airbnb connects people to unique travel experiences
in more than 34,000 cities and 191 countries. Airbnb is
the easiest way for people to monetize their extra space
and showcase it to an audience of millions.
They call this the sharing economy because it
connects property owners and travellers through a website
platform.
This article examines what an Airbnb host needs to know
about town planning permits, liability insurance, taxation
and strata apartments.
At the end is a summary of the NSW Parliamentary Inquiry
report into the Adequacy of the regulation of short-term
letting in New South Wales.
How does Airbnb work?
Property owners, known as hosts, advertise a room
or a home or an apartment for rent to guests for as little
as one night. A typical Airbnb website listing appears as
“$XX AUD” on a flag on a map which shows where the property
is located.
Currently, the Airbnb website has 2 million host listings
worldwide and 70,000 host listings in Australia.
The host sets the rent (they call it the price) higher
than the normal rent because it is a short-term letting. For
instance, the Airbnb rent of $65 per day (plus a cleaning
charge) is higher than the weekly rent of $250 per week for
the same room, but this suits the guest because it is
cheaper than the daily tariff charged by a hotel.
Guests make a booking, and once the host confirms, pay in
advance via the website.
Airbnb charges the host a service fee of 3% of the price.
It does not charge for listing the property. This charge is
lower than the 15% to 20% commission typically charged by
traditional holiday letting agents. Airbnb charges the guest
a service fee of 6% to 12%.
Houses and apartments which are located near the CBD, or
are near good transport links, are the most attractive
properties for Airbnb because they are cheaper and offer
more space than a hotel room in the same location. Holiday
houses and apartments are also attractive if they are
located near a beach or in a scenic area, or near lifestyle
attractions such as restaurants or vineyards. In those
places, Airbnb rentals tend to displace normal residential
rentals, which changes the character of the place from
residential to tourist. In Sydney, there are twice as many
Airbnb listings in Kirribilli and Bondi as normal rental
listings.
The Airbnb model is used by other homestay providers such
as Stayz, eDreams and Bookings.com. We focus on Airbnb
because it is the most successful.
What town planning approval is needed
to operate an Airbnb?
Airbnb hosts offer residential rentals, in the
sense they offer guests a place to stay.
They need town planning approval if the use changes from
an occasional residential rental use for visitors, to
a commercial use, which is to say, if the use becomes
providing temporary or short-term tourist or visitor
accommodation on a commercial basis. There are two
situations:
- Renting rooms
Rooms, especially if they have their own bathroom, make
up 40% of Airbnb rentals in Sydney. A ‘spare room’ is
normally a room inside an owner-occupied house or
apartment.
An Airbnb host will need Local Council approval (and a
licence) as Bed and Breakfast accommodation (a B&B)
if they provide on a commercial basis: (a) rooms for
overnight accommodation; and (b) at least breakfast or
common cooking facilities; and (c) more than two or
three double rooms for rent (which accommodate more than
6 people). A manager will usually reside in the
property. The precise requirements vary between Local
Councils.
- Renting whole houses or apartments
Whole houses, apartments, and self-contained buildings
(with a kitchen facilities and bathroom), make up 60% of
Airbnb rentals in Sydney. Almost 30% of Airbnb hosts
have multiple properties for rent.
For town planning purposes, not only houses and
apartments but also granny flats, garden apartments,
studios and cabins are Serviced apartments if
they are rented to tourists or visitors as
short-term lettings on a commercial basis and are
regularly serviced or cleaned by the owner or manager or
their agents. If they are rented with standard
residential leases (for a term of three months or more),
then they are normal rentals, not serviced apartments.
Airbnb hosts with serviced apartments need to check if
the zoning permits residential use. If so, they need to
check whether Local Council approval is needed for use
as serviced apartments.
Overseas, some cities like London have permissive
policies while other cities like New York City have
restrictive policies for short-term lettings:
- In London, an owner is permitted to short-term
let up to a total of 90 days a year without planning
approval.
- In New York City, urban apartment-dwellers must
be present if they rent out their units for less
than 30 days. This explains why Airbnb marketing
emphasises the personal touch: ‘earn more income
welcoming guests’.
- In Berlin, in Vienna and in Barcelona, most
short term rentals are barred.
What additional insurance cover is
needed for Airbnb rentals?
There are two events – injury and malicious damage –
which need additional cover.
- What if someone is injured (Public Liability
Insurance)?
Airbnb in your own home: Home Owner Insurance and
Strata Owner policies do not protect Airbnb hosts
who rent out rooms in their own home or in a building on
their own residential property because they do not cover
business use. It is the same for a home office. This
means that Airbnb hosts should obtain additional public
liability insurance cover for short-stay lettings. If
the use becomes a commercial use – such as bed and
breakfast accommodation, then business insurance should
be obtained.
Airbnb in an investment property: Landlord
Insurance policies do cover Airbnb hosts for
short-stay lettings if their guests are injured on their
rental property, because they are tenants. If short-stay
lettings are treated as serviced apartments, then
business insurance should be obtained.
- What if your property is damaged (Malicious
Damage)?
Malicious damage is excluded from standard insurance
policies. This means that the host is not covered for
damage caused in a ‘party house’ situation such as where
glass doors are broken, carpets are ripped and ruined,
walls are splattered with paint and toilet cisterns are
cracked.
For this reason, Airbnb offers ‘The Airbnb Host
Guarantee’ which applies automatically to every booking.
In Australia, it covers guest damage to the building and
to fittings, fixtures and other contents up to
$1,000,000 AUD. It has the same procedures for claims as
an insurance policy.
But there are policy exclusions, such as: Airbnb advises
hosts to take out their own insurance to cover valuable
items (‘fine art’) like jewellery, artwork, antiques,
rugs or collectibles which are damaged or stolen. Also,
the accommodation must have been built with planning
approval and be in good condition.
Airbnb requires hosts to comply with ‘Hosting
Standards’, including verification of the identity of
the guests to have the benefit of The Host Guarantee.
Airbnb has a two-way review which means that hosts and
guests rate each other (for cleanliness personal safety,
security of belongings, décor). This helps Airbnb
identify guests to be placed on the ‘watch list’ and in
some cases ‘blacklisted’.
How is Airbnb income treated for tax
purposes?
The Australian Taxation Office has a webpage – The
sharing economy and tax which provides this advice for
Airbnb hosts who are renting out a room or a whole house or
unit for a short-time basis:
- Income Tax: Airbnb has the same tax treatment
as property investments. These are extracts from the ATO
website:
When you rent out all or part of your residential
house or unit through a sharing economy website or app
you:
- need to keep records of all income earned and
declare it in your income tax return
- need to keep records of expenses you can
claim as deductions
- don't need to pay GST on amounts of
residential rent you earn.
If you are carrying on an enterprise in which you
rent out commercial residential premises you will have
different income tax and GST obligations.
Airbnb notifies its hosts annually of the income they
have earned through Airbnb.
Expenses such as service fees, cleaning expenses, repairs
and maintenance, food, photography for the listing are
deductable and the cost of furnishings is depreciable.
If the property is an investment property, then the
normal investment property deductions will be available,
such as loan interest, council and water rates, strata
levies, building and contents insurance, electricity and
gas, and building, fixtures and fittings depreciation.
- Capital Gains Tax (CGT): If the Airbnb is
part of the family home (the main residence), then:
You cannot usually obtain the full main residence
exemption from CGT if you used any part of it to produce
income during all or part of the period you owned it;
In most cases, the calculation is the proportion of the
floor area of the home that is set aside to produce
income and the period you use the home to produce
income. This includes if the dwelling is available (for
example, advertised) for rent.
Therefore an Airbnb use will result in a partial loss of
the main residence exemption from CGT on the sale of the
family home.
- Goods and Services Tax (GST): GST applies to
residential rent if the property has a business use.
You do have to pay GST if you provide accommodation
like a hotel room or serviced apartment, a bed and
breakfast. These types of accommodation are subject to
GST, if you carry on an enterprise.
Can Strata Owners bar Airbnb in Strata
Apartments?
Most complaints about short-term lettings in strata
apartments concern noise disturbance late at night and
damage to the common property. Strata By-laws deal with
noise disturbance and damage to common property caused by
visitors and occupiers in general terms.
But what Strata By-laws cannot do is to bar an owner from
using their apartment for short-term lettings, because the
Strata Law invalidates any By-laws which prohibit renting
out an apartment.
Illustration: an owner in a high rise block in
Melbourne’s Docklands, put his apartment into a pool of 14
apartments which were used as ‘executive rentals’, with a
minimum stay of 7 nights. The executive rental provider had
planning approval from the Melbourne City Council.
The Supreme Court of Victoria struck down a Strata By-law
which prohibited any ‘trade or business’ use in the block,
because it interfered with the legal right of an owner to
rent out their apartment. The decision is: Owners
Corporation PS 501391P v Balcombe [2016] VSC 384.
As a result, the Victorian Parliament has set up a
Committee of Inquiry into short-stay letting in apartment
buildings, including the adequacy of Strata By-laws in
managing the impact of high intensity short term lettings on
the amenity of strata owners (due to report 17 March 2017).
As a result of this decision in Victoria, and consistent
with the approaches taken in NSW and Queensland, owners in a
strata scheme who object to short-term lettings need to
raise their concerns with the Local Council which has the
power to give planning approvals and enforce conditions
attaching to those approvals.
Can tenants use Airbnb to rent out
rooms?
Tenants who rent out rooms are considered to be
sub-leasing. As such, they need permission (‘consent’) from
the landlord to use Airbnb to let out rooms (or indeed, the
whole apartment).
The Supreme Court of Victoria has upheld a landlord’s
termination of a residential lease because the tenant had
been using the apartment for Airbnb lettings. The Court
found that the tenant was sub-leasing without the landlord’s
consent, in breach of the lease. The decision is: Swan v
Uecker [2016] VSC 313.
The NSW Parliamentary report on
short-term holiday letting
The NSW Parliamentary Inquiry into the Adequacy of the
regulation of short-term holiday letting in New South Wales
handed down its report on 19 October 2016. It recommended:
- Overall, a light regulatory approach is the
objective.
- Short-term rental accommodation needs to be defined
and made a permitted planning use, administered by Local
Councils.
- Rental of spare rooms in a residence where the host
is present be permitted as exempt development, provided
that it has a low impact. Conditions might apply such as
smoke alarms, fire evacuation plans, a code of conduct,
and minimum standards of waste disposal.
- A Holiday and Short-Term Rental Code of Conduct
needs to be adopted
- Local Councils be given investigative and
enforcement powers including Queensland-style powers to
designate ‘party houses’ and restrict their use.
- Strata owners corporations be given the right to
prosecute unruly behavior and damage, and recover
compensation, but not have the right to restrict
short-term lettings.
The NSW Government’s response is due on 19 April 2017.
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