Holiday Home Deductions

The Australian Taxation Office is warning those with holiday homes to be wary of what they claim (and specifically when for) regarding their properties this year.

You may need to be prepared to answer questions such as:

How many days was it rented out, and was the rent in line with market values?
Have you, your family or friends used the property?
Where do you advertise for rent, and were any restrictions placed on tenants?

Not only will the total rent received, expenses incurred, and the number of days rented or available for rent need to be examined, but also the timing of those rentals, the rent received over the period, and the expenses incurred.

When you rent out all or part of your residential house or unit through a digital platform, like Airbnb, Home Away or Flipkey, you:

1. need to keep records of all income earned and declare it in your income tax return
2. need to keep records of expenses you can claim as deductions
3. don’t need to pay GST on the amounts of residential rent you earn.

The type of rent arrangements that are in place for the holiday home will also affect the tax implications for the property. Does it get rented out throughout the year or is it a vacation home for the family to stay in?

If It Is Not Rented Out

If you own a holiday home and don’t rent out the property, you don’t include anything in your tax return until you sell it. If you sell it, you must calculate your capital gain or loss (accurate records from purchase to sale can help).

If it is rented out

If you rent out the property, you need to include the rental income received as income in the tax return. Expenses for the property can be claimed based on the extent that they are incurred for the purpose of producing rental income.

• You will need to apportion your expenses if:
• your property is genuinely available for rent for only part of the year
• your property is used for private purposes for part of the year
• only part of your property is used to earn rent
• you charge less than market rent to family or friends to use the property.

It’s Available For Part Of The Year To Return

If you rent out your holiday home and also use it for private purposes, you must apportion your expenses. You can’t claim deductions for the proportion of expenses that relate to your private use or if it was not genuinely available for rent, such as when used or reserved for yourself, friends or family.

If your holiday home is rented out to family, relatives or friends below market rates, your deductions for that period are limited to the amount of rent received

It’s Not Genuinely Available For Rent

Expenses may be deductible for periods when the property is not rented out, if the property is genuinely available for rent. There may be factors that could indicate if the property isn’t genuinely available for rent, including:

• Limited advertising (such as at your workplace, word of mouth, restricted social media groups, outside annual holiday periods)
• The location, condition or accessibility of the property make it unlikely to be rented.
• Unreasonable or stringent conditions are placed on the property.
• You refuse to rent out the property to interested people without adequate reasons.

These factors generally indicate the owner doesn’t have a genuine intention to earn rental income from the property and may have other purposes, such as using it or reserving it for private use.