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. 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 family, and friends, not genuine rental properties.

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 mean 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 not genuinely available for rent.

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 through your options with an expert, call Nitin and the team on 0407 027 593

Contact us now