This year, the Australian Taxation Office is cautioning holiday home owners to be mindful of what they claim (and specifically when for) regarding their properties.
You may need to be prepared to answer questions such as:
- How many days did you rent out your holiday home, and did the rent align with market values?
- Was the property used by you, your family, or friends at any point?
- Where did you list your property for rent, and were there any limitations set for tenants?
But what if you’re not renting out your holiday home?
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).
How different rental scenarios impact your deductions
If you’re utilising a digital platform like Airbnb, Home Away, or Flipkey to rent out all or part of your residential house or unit, remember these crucial pointers:
- Record all earned income and declare it in your tax return
- Monitor deductible expenses closely
- No need to stress over GST on the residential rent you earn, it’s not required
But don’t forget, the type of rental arrangement you have for your holiday home plays a big role in its tax implications. Ask yourself: Is my property mainly a holiday spot for the family, or is it rented out throughout the year?
If it’s the latter, your rental income must be included in your tax return. You can claim property expenses, but these should correlate to the intent of earning rental income.
Certain circumstances require you to apportion your expenses. This is necessary if:
- Your property is only available for rent part of the year
- Part of the year sees your property used for private purposes
- Only a portion of your property is used to earn rent
- You offer the property to family or friends at less than market rent
Tax implications for seasonal rentals
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.
Deductible expenses for vacant rentals
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
Final reminder, timing matters in holiday home tax obligations
It’s not just about the total rent you’ve collected, or the expenses you’ve incurred, or even how many days your property was rented out or available. It’s also about the when – the timing of those rentals, the period over which you received the rent, and when those expenses incurred. These details matter and can make a real difference in your tax obligations.
If you need help with keeping track of all these, our team at Clarity Taxation is here to guide you through every step. We’ll work with you to make sure you’re taking full advantage of your entitlements while staying tax compliant. Reach out to us today.