Upgrade your STRA and maximise depreciation deductions

With short-term rental accommodation (STRA) consistently being blamed for the shortage in the long-term rental market, legislative changes hoping to get STRA dwellings back into the long term rental pool are ongoing.

Short-term rental accommodation (STRA), is a privately owned residential property that is registered with the state or regional government to be rented out for short periods. The minimum stay can be as little as one night, but the maximum length of a stay varies from state to state. Differentiating factors are location, and whether the property is hosted, with the owner residing in the property, or non-hosted, with the owner living off site.

Early in 2023, Victoria announced a 7.5% levy on short-term rental platforms like Airbnb and Stayz, with the government hoping to raise around 70 million dollars to put towards social and affordable housing development.

In September 2023, Byron Shire council in NSW was authorised to cap most registered short-term rentals at 60 days in a calendar year for non-hosted STRA dwellings in most parts of the shire. Specific holiday hotspots in Byron Bay and Brunswick Heads have been isolated with no caps on short-term rentals throughout the year.

In greater Sydney and nominated regional NSW areas, non-hosted, government-registered STRA dwellings can now be rented for up to 180 days per year, leaving properties unavailable for rent as STRA for the remainder of the year.

Western Australia experienced a particularly stringent housing shortage over the past year and has followed suit with new compulsory short-term rental registrations and similar STRA restrictions. Occupancy of non-hosted properties is now limited to a maximum of 180 total days per calendar year, with a restriction of no more than three consecutive months at a time.

The registration of short-term rentals across NSW alone now exceeds 45,000 and mayors in other holiday hotspots are calling on the Government to step in with similar restrictions. Vacant property taxes, levies and annual caps will be considered when the New South Wales Government reviews further regulation of the short-term rental market.

Despite these ongoing restrictions and obvious challenges triggered by interest rate hikes and wavering investor sentiment, the short-term rental sector showed growth in 2023 and this growth is expected to continue into 2024. This is predominantly due to the return of international tourism and an increase in occupancy and daily room rates. Airbnb guests spent over 3 billion dollars in Australia last year and supported nearly 28,000 jobs in communities across NSW alone.

As income-producing properties, STRA dwellings are eligible for depreciation deductions and BMT saw a 15% increase in depreciation schedules completed for STRA dwellings in 2023. These depreciation schedules boosted cash flow for investors, especially for properties that underwent upgrades and renovations that led to improved online rankings and higher daily rates.

In the tables below we have listed potential depreciation deductions for top-ranked amenities in short-term rental reviews, illustrating how an investor can maximise tax deductions when crafting an STRA experience that will have guests rushing to book their property.

The necessities

Apart from location, the highest searched criteria for STRAs includes Wi-Fi, kitchen facilities and bathroom amenities.

Creature comforts

When it comes to those all-important, price-determining reviews and rankings, soft furnishings and ambience are highly rated mentionables that can swing a user to your STRA.

Continually improving an STRA through upgrades and renovations therefore doesn’t only increase the potential for stronger reviews and rankings that will earn the investor the best daily rates, but with the depreciation deductions available on these renovations and improvements, the investor will also maximise their tax deductions and increase cash flow.