Short-term rental tax considerations

Our Experts Answer:

Before answering your question around claiming expenditure, I want to touch briefly on GST. You need to be careful here. Even if the short-term stay accommodation rental remains below the GST threshold, it can be subject to GST if you are running this activity through a GST registered entity.

You’ve explained that you have a residential investment business to which GST is not applicable and a separate GST registered business. If they are both run through the same company then the moment you convert your residential rental to short-term stay accommodation, the property will be dragged into the GST net - even if the short-term rental revenue alone sits below the GST threshold.

In terms of costs, the acquisition of any furniture is not likely to be deductible on the basis that you will be acquiring depreciable chattels. This means you don’t get an upfront deduction, but you get to write off the cost of the chattels over time at the relevant depreciation rate. There are some exceptions to this rule where you spend less than $500.

As for renovations, that depends on whether they constitute capital improvements or repairs and maintenance. You mention the renovations are “small”, which indicates there could be an argument that the expenditure is deductible on the basis it is repairs and maintenance. However, this is a very contentious area and not something on which we can reach a conclusion based on these facts only.