When does an Airbnb stop being rental income and become a business?

Navigating the ATO threshold between rental income from a property investment and running an Airbnb business

Short-term rentals like Airbnb have become a common part of the Australian property market. This might start as a side-hustle, renting out an investment property, or sometimes just a room to boost income. For some, that investment is lucrative enough that it quickly evolves into a more commercial operation. A single investment property might expand into owning multiple properties, with regular guest turnover, active marketing, add-on services, and hands-on management. 

We often get asked if you need an ABN before you can start renting out your investment property as an Airbnb. Most of the time, the answer is no, as the ATO usually treats Airbnb as rental income and not business income. 

However, there are circumstances where it does get treated as business income. If you own or are thinking about starting your own Airbnb, it’s important to understand the distinction. How the ATO classifies your Airbnb or short-term accommodation activity can significantly affect your tax obligations, the deductions you can claim, your GST position, and how your overall affairs are structured. Getting it wrong can be expensive, so it’s important to understand how the ATO approaches this issue. 

How the ATO decides if it’s rental activity or a business

As with many areas of tax and ATO decisions, there is no single test they use. Instead, they look at the overall pattern of your activities, what it looks like in practice. 

When an Airbnb looks like an investment property:

• You have limited hands-on involvement.
• You own one, or only a small number of properties.
• You provide basic accommodation only.
• You don’t provide ‘hotel-like’ services (such as meals, tours, or daily cleaning).
• A property manager or agent handles most of the work. You mainly approve expenses and review statements provided.

In these cases, Airbnb is simply the booking platform, and your income is treated as rent from a property, not a business.

Example 1: Liam owns 12 residential units across three locations. A professional property manager handles all bookings, cleaning, rent collection, guest issues and maintenance. Liam reviews monthly reports and approves major expenses but has little day-to-day involvement. 

Despite the number of properties, Liam’s role is passive, and the activity is treated as rental income rather than a business.

When Airbnb start to look like a business:

• You control and manage multiple short-term rental properties.
• You spend significant time each week on bookings, guest communication, cleaning, and maintenance.
• You provide additional or recurring services beyond basic accommodation, such as welcome hampers, linen services, cleaning between stays, concierge-style assistance, or curated local experiences.
• You operate in a clearly organised and commercial way, with systems, planning, and marketing.
• The activity looks like a scaled and organised operation rather than a passive investment.

The more your setup looks and feels like a commercial operation, the more likely it is to be treated as a business.

Example 2: Sophia and Daniel own 18 short-term rental properties. They manage the properties themselves, handling marketing, guest communication, cleaning schedules, pricing, and repairs. They also provide local visitor information and additional guest services. 

They spend approximately 30 hours per week running the operation and have documented systems and procedures in place. Due to the active management, time commitment and commercial approach, their activity is classified as a business.

Importantly, the number of properties alone is not decisive. The level of involvement and commerciality are key.

How does this impact Airbnb owners?

There is compliance risk and consequences for getting it wrong. Misclassification of Airbnb and short-term accommodation income is an area the ATO regularly reviews, and owners can face penalties and back taxes. 

For individual operators receiving rental income:

• Income is declared in the rental schedules in your tax return.
• You can claim deductions such as interest, depreciation, repairs and maintenance and management fees.
• GST generally does not apply unless the property qualifies as commercial residential premises.

It is important to be realistic about your level of involvement. One holiday rental with minimal services is very different from a hands-on, multi-property tourism operation. 

To reduce risk:

• Ensure your classification aligns with ATO guidelines.
• Maintain clear documentation of how your operation runs.
• Review your tax position if your Airbnb evolves.

For Airbnb business owners:

• Income is reported under business schedules.
• You may need an ABN and to register for GST if turnover exceeds $75,000.'
• You may be entitled to a wider range of deductions, including marketing, admin costs, and other operating expenses.
• Look at structuring through a company or trust which may provide better tax outcomes.
• Keep clear and detailed records of income, expenses, and services provided.
• Treat your operation like a business if that is how you’re running it.

How RSM can help

There is no universal rule that applies to every Airbnb owner. What matters is what you do, how involved you are and how commercial the set up really is.

Professional advice can provide clarity if you are operating in a bit of a grey zone or moving towards it. Getting professional advice early can help you avoid costly mistakes.

Talk to one of our advisors at your local RSM office.