Holiday Rental Tax Deductions: The Basics
Do you own a holiday rental property? You could be eligible for valuable holiday rental tax deductions.
Holiday rental properties are a common type of investment property in Australia.
Although the operating costs of a holiday rental property can be higher than other rentals, rents are higher too. So, when well managed and maintained, the right property in the right place can be a very lucrative investment. Even more so when tax deductions and capital growth are put into the mix.
It’s important that you get every tax advantage you’re entitled to for your holiday rental listed on Search and Stay. However, the ATO is very vigilant when it comes to false or “unsubstantiated” claims.
Let’s cover some basics to help ensure you get all the tax deductions you can for your holiday rental property, legally.
The first thing to know is that record-keeping is essential. If you don’t save receipts and keep records, you could lose out on thousands in tax deductions every year. Worse still; at risk of ATO audit.
The Do's and Don'ts of Holiday Rental Deductions.
Is my family holiday home eligible for tax deductions?
You’re only eligible for holiday rental tax deductions for the period when a home is advertised on Search and Stay and available for rent (or is rented out).
Be careful: Don’t lump all of your expenses together and don’t include expenses for your personal use of the house. The ATO keeps an eye out for this sort of thing. If the ATO queries your claims, and you can’t provide time-specific evidence for your expenses – plus show how you calculated the claimed portion (more on that below) – then you could face tax penalties or fines plus the repayment of taxes from other years.
We’d suggest that the ATO allows for some generous tax deductions for holiday rental properties advertised on Search and Stay. Plus, people who own holiday homes ought to be happy to pay their share of Australia’s taxes. If you rent out your holiday property, there are lots of deductions you can claim.
What holiday rental property expenses can I claim as tax deductions?
If you own an Aussie holiday rental property you can claim valuable rental property tax deductions that make it easier – and financially positive – to own and operate your holiday rental.
Expenses you can claim as tax deductions for your holiday rental property advertised on Search and Stay include:
- Maintenance & repair costs
- Yard maintenance
- Advertising costs
- Pest control
- Insurance
- Cleaning
- Body corporate fees
- Council rates
- Property insurance
- Interest (on the funds borrowed to purchase the home)
- Depreciating assets
- Capital works deductions
- …and more.
Remember, you can’t claim holiday rental tax deductions for periods when the property is used for personal purposes (which includes staying there yourself, letting it to family & friends, or time when it’s not advertised on Search and Stay and available for rent).
You can choose “Rent” as an income source and then use a worksheet that covers all the rental property tax deduction options.
Can I claim travel expenses when I inspect or repair a holiday rental property?
Due to a great number of people taking advantage of the ability to deduct travel expenses while largely travelling for personal reasons, from July 1 2017, travel expenses for rental properties ceased to be tax-deductible.
The examples below will help you determine what holiday rental tax deductions you can claim.
1. My holiday rental property is leased out frequently.
There are similar rules and regulations between a general rental property and a holiday home. This includes dividing expenses between periods when the property is either rented or available on Search and Stay., and those periods when it is off the commercial market.
For instance:
- Leased free of charge or discounted for friends, family or colleagues.
- If you use the property yourself.
- When you choose to leave it vacant.
2. Is my holiday home “genuinely available”?
The ATO often crack down on holiday homeowners who don’t genuinely try to rent out their property. A few indicators of this include;
- Unreasonably limited advertising. For example: You advertise only at work, to friends or off-peak periods only.
- Unreasonable restrictions, such as requesting references for short stays or banning children and pets.
- Rejecting rental enquiries or offers for reasons that are unjustified.
The ATO may review the issues like those above to determine if the property is a genuine holiday rental property or a private holiday home.
3. My holiday rental property isn’t advertised and available right now
If you don’t rent out the property at all, you cannot claim any expenses related to the property. Hold on to your receipts anyway. When it comes time for you to sell, you need to have those records to help determine your capital loss or gain.
4. How to divide holiday rental tax deductions between rental and private use
Holiday rental property deductions only apply to the periods of time when the property is rented or available for rent advertised on Search and Stay. You can’t claim tax deductions for a holiday rental property if it is being kept vacant or used for private purposes.
For example:
Dave and Jess own a holiday rental property on the Sunshine Coast.
Expenses for operating and maintaining the holiday home were $20,000 for the tax year, including interest, maintenance, cleaning, repairs and rental agents.
The property was available to rent for $500.00 per week and occupied for 34 weeks in the year. This earned them $17,000 in rental income.
It was available for rent, but vacant, for 12 weeks. Over Christmas Dave and Jess stayed in the property themselves for 4 weeks.
Therefore, the property was either available for rent or was occupied by renters for 48 weeks out of 52 weeks.
Remember, Dave and Jess can only claim expenses for weeks when the property was genuinely available for rent on the market and/or was rented out.
48 weeks divided by 52 weeks X $20,000 total expenses = $18,461.50 claimable expenses
Dave and Jess can claim $18,461.50 in rental property tax deductions between the two of them ($9230.75 each.)
5. How to divide holiday rental tax deductions between two owners
Joint owners should claim deductions correctly. The ATO watches out for couples who split income and deductions unequally for tax advantages. When two partners own equal shares of a property, they should claim equal shares of the expenses. If one partner owns 20% of the property, that person can only claim 20% of the expenses. Simple!
Source: etax accountants.