Holiday house tax benefits
Now that summer has come and gone, the ATO has been active in issuing reminders about the taxation issues surrounding holiday house.
What’s the tax treatment for holiday homes?
If your holiday house is just used by yourself, and your family and friends (that is, it is not rented out), then there is generally nothing to include in your tax return in terms of income or deductions until the property is sold.
But when that time comes, you will need to have kept records of all expenses and outgoings from the time you bought the holiday house until the day it is sold. This will enable us to be able to accurately work out any capital gain (or perhaps loss) when you sell.
However if it has been leased or rented out, the principles that apply to an investment rental property also apply to a holiday house from an income tax point of view. Owners are therefore eligible to claim expenses for the property based on the proportion of the income year when it was rented out or, alternatively, based on when it was “genuinely available” for rent.
Genuine availability for rental
If the holiday house is really available to be rented out, but you or your real estate agent have simply not been able to attract renters, then the ATO will still generally allow deductions for that property.
However the ATO is wary that some less-than-scrupulous holiday home owners may try to make expense claims for their property while not really intending to rent it out to others.
The ATO has outlined various factors that it believes may indicate that a holiday house is not “genuinely available” to be rented — leaving the property owner ineligible to make expense claims.
Factors that the ATO can be on the lookout for include a holiday house that is:
- advertised in ways that limit its exposure to potential tenants – for example, the property is only advertised at a workplace, by word of mouth, or outside annual holiday periods when the likelihood of it being rented out is very low
- the location, condition of the property, or accessibility to the property, mean that it is unlikely tenants will seek to rent it
- you place unreasonable or stringent conditions on renting out the property that restrict the likelihood of the property being rented out – such as:
- setting the rent above the rate of comparable properties in the area
- placing a combination of restrictions on renting out the property – such as requiring prospective tenants to provide references for short holiday stays and having conditions like “no children” and “no pets”, and
- you refuse to rent out the property to interested people who have applied to rent the property without adequate reasons.