Why is there an increasing discrepancy in the growth in the tourist numbers arriving in Australia and the number of tourists staying in our hotel beds? While there are a few reasons, the rise of the sharing economy enterprise (SE Enterprise) is a significant contributing factor.
SE Enterprises such as Airbnb, Flipkey and HomeAway, which provide private short-stay accommodation, are changing the hospitality and tourism landscape in Australia.
A successful tourism sector is founded on the attraction of large numbers of local, national and international tourists. Many factors impact on tourist numbers including cultural, natural landscapes and attractions, people, currency rates, cost of transport and importantly, cost of accommodation. In that the SE Enterprises provide competitive rates and a range of options for tourists thinking of travelling to WA, they are a positive influence. Undoubtedly though, as the market adapts to this growing trend there will be winners and losers.
Whilst these platforms may be culturally and financially beneficial to property owners and tourists, there are other issues and implications which must be considered.
The growth and surging popularity of SE Enterprises in general is evident with many SE Enterprises becoming household names (Uber, eBay, Airbnb and Flipkey). But what effect does this growth have on short-stay accommodation providers in the Australian tourism space?
According to Deloitte’s Tourism and Hotel Market Outlook 2015 – Mid Year Update (Deloitte Report), commercial accommodation providers have experienced modest growth in 2015. The “strong growth” in Australian tourist numbers did not translate to corresponding growth in the occupancy rates in commercial accommodation. This discrepancy is due to many visitors seeking "alternative lodging options”.
Further, the Deloitte Report declared that WA has experienced a large growth of domestic visitor numbers recently. This was “led by stays in private accommodation”, however.
Why does the growing popularity of ‘alternative lodging options’ matter?
Taxation - income tax and GST
With SE Enterprises, there are significant tax considerations. In Australia, there are 40,000+ premises listed on Airbnb alone. It is also estimated that the average annual earnings of an Australian Airbnb ‘host’ is $7,100.
Any income earned by an individual must be declared annually to the Australian Tax Office (ATO) as personal income tax. Property owners deriving income from renting their premises through SE Enterprises may inadvertently fail to declare this income or intentionally evade paying tax on that revenue. Based on these figures, the annual income of all Airbnb ‘hosts’ in Australia is around $284 million. The potential loss of revenue collected by the ATO could be substantial therefore.
A property owner renting out residential premises is generally not liable for GST under the A New Tax System (Goods & Services Tax) Act 1999 (Cth) (GST Act). However, in some instances consideration may need to be given as to whether the property owner is operating a ‘boarding house’ or a ‘hotel/motel enterprise’ for the purposes of the GST Act.
In addition, if the property owner is providing “residential premises similar to hotels, motels, inns, hostels and boarding house establishments that provide residential premises similar to hotels, motels, inns, hostels and boarding houses”, the ATO position is that the property owner has a “commercial residential property” and is liable for GST on the monies collected and potentially on any sale of the premises.
This may also affect the capital gains tax (CGT) free status of the home. Practically, this will be a question of fact and degree. If the property owner is regularly providing short- stay accommodation, then the CGT tax free status of the premises could be compromised.
During the current Senate Inquiry into corporate tax payments (or avoidance of payments, as some quarters maintain), Airbnb admitted at the Inquiry that despite it paying its required Australian taxes, all of its major operational activities occur in Ireland, where taxes are much lower. Given the real loss of revenue this entails, it is not surprising that the Federal Government is currently addressing this issue both at a domestic and international level.
SE Enterprises operate on a peer-to-peer platform. This model generates fewer, if any, employment opportunities when compared to the traditional hotel and resort models. The lack of employment opportunities has consequential negative impacts on taxation revenue, the local community and the wider economy.
There are several insurance implications for property owners providing accommodation through SE Enterprises.
The standard home insurance policies is unlikely to be adequate to cover the additional risk associated with short stay accommodation, or the policy may permit the insurer to refuse a claim because of this use of the premises. Where the premises is part of a strata complex, there may be issues with the validity of the body corporate’s insurance policy or some by-laws may prohibit short-stay accommodation within the complex.
Another consideration is whether damage or destruction to the premises caused by a person permitted to be in the premises, will be covered by the insurance policy. There have been some cases where insurers have successfully defended their decision not to pay out claims on this basis.
If third parties are engaged by the property owner to manage or clean the premises, separate workers’ compensation insurance may be required.
Occupational Safety and Health Act 1984 (WA)
This is an area of law fraught with complexities. The party liable to comply with the Act is often difficult to determine. The penalties under this Act can be significant. Consideration should be given to the risks and liabilities that may arise in this area.
Planning and local government
Planning laws and regulations must be considered when a property owner decides to rent premises through an SE Enterprise. Renting premises for short-stay accommodation may be a non-permitted (therefore illegal) use of the premises. Property owners must be aware of the local planning schemes and the zoning applicable to the premises.
Local governments in WA have delegated authority under theHealth Act 1911 (WA). This may include the enforcement of laws (including local laws) relating to food, noise and public safety.
As planning schemes and local laws can vary significantly between different local governments, attention needs to be paid to the particular circumstances.
Residential Tenancies Act
In general, the Residential Tenancies Act 1987 (WA) (RTA) applies to any agreement under which a property owner, in exchange for consideration, grants a right to a person to occupy a residential premises (or part of it). Although, there is a presumption that the RTA will not apply to private short-term accommodation, it is only a presumption which can be rebutted depending on the facts.
Currently, the legislative and regulatory frameworks do not adequately address the social economy, particularly in relation to SE Enterprises which provide short stay accommodation. It is likely that reform will be implemented in the near future. The complexity of this task should not be underestimated and it is unlikely that all of the reforms will produce uniform laws across Australia.
The growth of SE Enterprises is certainly emerging as a challenge to a section of our tourism and hospitality industry sectors. This new social economy is expanding and its growth is certain to continue. As Prime Minister Turnbull is fond of saying, we have to be agile and adapt to embrace the opportunities presented by the significant changes occurring in the tourism and hospitality sectors.