The Truth about Tax Deductions for Holiday Homes
Holiday homes are a popular investment with many Australians. They can provide a steady and positive cash flow with negative gearing benefits and can save capital gains tax on holiday homes.
In addition, you can claim the interest, expenses, and deprecation on tax and write off any loss against your salary and other income.
In recent years, the ATO has begun to target properties in popular holiday destinations to ensure that any deductions claimed concerning these properties are appropriate.
In some cases, the ATO appears to suspect that these properties are holiday homes used by the owners, their families, and friends, not genuine rental properties. That is why you need to be aware of holiday home tax rules and avoid being chased by ATO.
Is the property a genuine holiday home?
ATO uses the below factors to consider if the property is a holiday home that is genuinely available for rent:
- Is the property advertised in a way that limits its exposure to potential tenants? For example: at the owner’s workplace, by word of mouth, or outside annual holiday periods, when the likelihood of finding a tenant is very low.
- Its location, condition, or poor accessibility means it is unlikely tenants will seek to rent the property.
- The owners place unreasonable or stringent conditions on renting out the property that may restrict it from being rented out. Such conditions may include:
(a) Setting the rent above the rate of comparable properties in the area
(b) Placing a combination of restrictions on renting out the property, such as requiring prospective tenants to provide references for short holiday stays or having conditions like “no children” and “no pets.”
(c) They are refusing to rent out the property to interested people without adequate reason.
These factors may indicate that the owner does not have a genuine intention to make income from the property and is reserving it for private use.
In such cases, the ATO will disallow deductions for properties that are not used to derive rent or are not genuinely available for rent, as holiday home tax rules apply.
Travel costs to and from holiday home
You cannot claim a deduction for any costs incurred traveling to and from the property.
However, suppose you are primarily visiting the property to have a holiday and subsequently undertaking repairs and maintenance during this period.
In that case, you can claim repair and maintenance costs based on the proportion of the income year the property was rented out; or was genuinely available for rent.
You still cannot claim a deduction for your travel costs.
If you want to talk about holiday home tax deductions, holiday home tax rules or know your options with an expert, call Nitin and the team at 0407 027 593.
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