If you’re a property investor utilising your property for short-term stays or leaving it vacant, you should pay close attention. The regulators are now setting their sights on you.

Victoria’s Groundbreaking Move

In a significant development, the Victorian Government has just introduced Australia’s first-ever short-stay property tax, aptly dubbed the ‘Short Stay Levy.’ This tax, slated to take effect from January 1, 2025, is anticipated to generate a substantial annual revenue exceeding $70 million. What does this mean for you as a property owner? If you’ve been enjoying a short stay in Melbourne for $850, be prepared to budget an extra $63.75, bringing your stay’s cost to $913.75. That’s 7.5% of the short-stay accommodation platform’s revenue in taxes.

The Numbers Game

According to official statements, there are over 36,000 short-stay accommodation places, with nearly half located in regional Victoria. Of these, more than 29,000 are entire homes. Interestingly, Airbnb’s ANZ Country Manager, Susan Wheeldon, points out that short-term rentals in Victoria make up less than one percent of the total housing stock. She emphasises that acute housing issues predate the birth of Airbnb, and targeting these properties may provide a short-term solution.

What Lies Ahead

The tax landscape for property investors is shifting, and you should brace yourself for a wave of similar taxes, either at the local government or state level. For Victorian investment property owners, this comes on the heels of a temporary land tax surcharge starting in the 2024 land tax year. For those keeping their property vacant, there’s an increase in the absentee owner surcharge rate from 2% to 4%, along with a significant reduction in the tax-free threshold from $300,000 to $50,000 (for non-trust absentee owners). Fortunately, some local government taxes on Airbnb-style accommodation will be removed once the new tax goes into effect.

Local Variations

The tax scene isn’t the same everywhere. Some councils already impose surcharges on short-stay accommodation. For instance, Brisbane City Council recently introduced a 50% rate surcharge on properties listed for short-term rental for more than 60 days a year in their 2022-23 Budget, and they’ve since bumped it up to 65% in 2023-24.

Global Perspective

Looking overseas, bed taxes in some form aren’t uncommon, but it’s unusual to single out one type of tourist accommodation, as the Victorian Government has done. Equally notable is the 7.5% tax rate; many local taxes on short-stay accommodation hover around the 5% mark (with California’s Transient Occupancy Tax going as high as 15%, depending on the region).

Globally, the concept of taxing vacant and short-term accommodation isn’t new. In British Columbia, the introduction of the Underused Housing Tax, a 1% tax on vacant or underused housing starting from January 1, 2022, is credited with increasing rental stock by up to 20,000 properties. Meanwhile, New York has taken a different approach by implementing rules in September 2023 that significantly restrict Airbnb-style accommodation options. Hosts must now register with the city for stays of less than 30 consecutive days, with a requirement to permanently reside in the property. Entire properties will no longer be available, and only two guests are allowed, with platforms responsible for enforcing these rules. New York is not alone in reining in short-term rentals, with Amsterdam, Paris, and San Francisco imposing limits on the number of days an entire residence can be listed, ranging from 30 to 90 days per year.

A Local Example

Taking a look closer to home in Byron Bay, the Byron Bay Council is set to limit “non-hosted holiday letting to 60 days per year for most of the Shire” from September 23, 2024.

The Bigger Picture

So, what’s the future of short-term rentals in Australia and around the world? Governments will likely take advantage of the opportunity to tap into the lucrative short-term rental market. What this future landscape looks like will depend on individual states and territories. Besides generating revenue, we can expect further regulations to ensure that the private gain from short-term rentals doesn’t come at the expense of long-term accommodation supply.

Conclusion

As we navigate this changing landscape, it’s clear that property investors will need to adapt to new tax structures and regulations. With the short-term rental market showing no signs of slowing down, understanding the evolving tax environment is essential for property owners and government entities.


General Advice Warning

The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.

Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.

Although every effort has been made to verify the accuracy of the information contained on this page and on this website, C&N Accountants, its officers, representatives, employees, and agents disclaim all liability [except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this website or any loss or damage suffered by any person directly or indirectly through relying on this information.