Uncharted waters.

Earlier this week a colleague forwarded an article published in The Australian covering the potential unconsidered tax implications for Airbnb and Stayz hosts. It seems many hosts may be unwittingly opening themselves to capital gains liabilities should they decide to sell their home.

The “family home” has long enjoyed a capital gains exemption, however if that property begins to derive an income from, say, short term rentals, the ATO has a formula with which they can calculate a liability based on the income, frequency, and portion of the property used to earn that income. The Australian’s piece suggested that the ATO is working with facilitators, like Airbnb, to track this activity.

We’ve seen steps taken around the world to tighten the regulatory environment that short term rentals operate in. Very notably New York State, and its massive New York City market, has been decimated by legislation that prohibits owners from renting out entire apartments and homes for less than 30 days. Other major global cities too have begun to heavily regulate the terms and conditions in which a property can be made available for short term rentals.

There is anecdotal evidence of the, some might say, negative impact of the incredible growth and popularity of the “Airbnb movement”. Residents in some Airbnb hotspots, like St Kilda in Melbourne and Surry Hills in Sydney, lament the now seemingly constant parade of people in and out of apartment complexes, the relentless late night partying, and the increased presence of groups of tourists smoking in common areas. Businesses in these areas, particularly in the hospitality industry, are significantly more accommodating of the transient population.

Full disclosure, we operate an Airbnb Concierge and Management service that for our clients can be a very attractive alternative to a traditional tenancy arrangement. Industries that aren’t regulated or are loosely regulated by government, have their own inherent regulatory framework – customers and operators define it. My concern is that the incredible success of Airbnb and its competitors, will force the hand of our local, state and federal governments to intercede and impose a stricter set of conditions, that could have massive repercussions on the industry.

In an article published in the New York Times in April 2017, the Attorney General believed “most Airbnb listings in New York” were operating illegally. Imagine, if you will, the introduction of similar laws to those that now operate in New York, in the Melbourne and Sydney marketplaces.

2018 may or may not be the year in which regulation of this industry tightens, but it’s hard to argue against an impending and inevitable tide of change that will have significant impact in this space.

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Uncharted waters.