Tens of thousands of Australians are pocketing extra cash by renting out their house or spare room on home-sharing websites, but much of the money is changing hands in a regulatory twilight zone.

Government regulation is lagging way behind the booming sharing economy, leaving many householders unsure of the rules or operating on a "don't ask, don't tell" basis.

Sally Marshall and her husband Greg (not their real names) are renting out a house they have built at the back of their property in inner-city Sydney for $180 a night.

They have earned about $30,000 in just under a year but are unclear about their obligations when it comes to tax.

"I don't know and I don't really want to ask," Ms Marshall said.

The biggest operator in the home-sharing market is the US-based behemoth Airbnb.

Airbnb Australia said it had 40,000 hosts each earning an average of $7,100, which adds up to close to $300 million in income.

In May, the Australian Tax Office issued new guidelines on the sharing economy.

It ruled that income derived from home-sharing was not liable for GST but hosts were required to declare any income earned in their annual tax return.

Airbnb Australia's country manager, Sam McDonagh, said it was up to individual users to comply with local tax laws.

"We're 100 per cent tax compliant in every country we operate in and certainly for our hosts and guests, we advise them that they need to comply with all the taxation legislation wherever they are," he said.

"We encourage them to report all income that they earn in their tax return every year and that information is readily available for those hosts on the website."

A few days ago Airbnb in Ireland informed hosts that details of their income were being passed on to the Irish taxman.

The company also provided the authorities with the dates of when people registered on the site to allow officials to assess whether any tax arrears were owing.

Many Irish hosts reacted angrily to the news they may have to pay 51 per cent tax on their Airbnb earnings.

The Irish government said it was important to provide a level playing field between different types of accommodation providers.

Airbnb Australia said it had not received any similar request for information from tax authorities here.

"We have a positive working relationship with the Australian Government, including the ATO, and we'd work with them on any request they make of us," Mr McDonagh said.

The hotel industry has pointed to tax avoidance by commercial operators that have moved into the home-sharing market, saying this has created unfair competition.

"What we're concerned about is that they can start to undercut hotels because they are not applying any of the regulations," Tourism Accommodation Australia acting chief executive officer Carol Giuseppi said.

"They're not paying the appropriate taxes, they're not putting in place the fire safety, security and other measures that are so important to visitor safety."

Airbnb Australia said 85 per cent of its listings were the primary residence of the host.

But Ms Giuseppi said research in the United States found between 30 to 70 per cent of home-share listings analysed were actually from commercial landlords.

"The reality is they're not contributing to taxes, they're flying under the radar so we don't understand the visitor safety and access issues and they're also not contributing to employment," she said.

Complying with local laws 'not always straightforward'

The landscape grows even more blurred when it comes to complying with local council regulations.

Ms Marshall said: "99.5 per cent of people doing this are going under the council radar."

Her local council, City of Sydney, does not permit visitor accommodation in residential areas.

The Marshalls are aware of this so they have opted to keep their heads down.

"I didn't want to ask the council because I didn't want them to say no," Ms Marshall said.

"If I was to run it as a long-term lease it wouldn't need council approval and, in my view, it shouldn't matter if it is a short- or long-term lease."

Mr McDonagh said Airbnb encouraged hosts to be aware of and comply with local laws, but that was not always straightforward.

"One of the challenges, of course, is that from a state level to a local government level and even street to street, the laws could be different for hosts in Australia and I think some consistency across the board would certainly be welcomed," he said.

The hotel industry is advocating a two-track system with separate regulation for commercial operators in the home-share market.

"We obviously don't want the person renting out their room to be subject to the same regulation as the hotel market," Ms Giuseppi said.

"We are recommending that there's special residential as one category and then commercial short-term accommodation as the other category."

Public safety under question

The hotel industry says there is also the question of public safety.

"We do have concerns about visitor safety and amenity and there are obviously concerns about public liability insurance," Ms Giuseppi said.

When it comes to ordinary homeowners, she said many were genuinely unaware of their insurance liability.

"They are actually inviting guests in on a commercial basis and their insurance often doesn't cover that," she said.

The Airbnb website encourages hosts to review their insurance policy but does not require them to have public liability insurance.

"We probably should have it, but we don't," Ms Marshall said.

"That would be really complicated if we had to do that.

"If everything became complicated and changed, I think we would look at selling the house and having a holiday."

Airbnb Australia said it was working on providing public liability cover for its Australian hosts.

"We've rolled out comprehensive public liability cover in North America and that will completely cover Australia and New Zealand by the end of the year," Mr McDonagh said.

It is estimated that 45,000 rooms are currently being rented out on home-sharing websites in Australia.

That is equivalent to 20 per cent of the number of rooms available around the country in hotels, motels and serviced apartments.

So far the explosion of home sharing has not resulted in any downturn in hotel occupancy rates.

Last year occupancy rates were running at an all-time high of 68 per cent nationally.