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Depreciation on Holiday Homes
Depreciation on Holiday Homes

Go on holidays and claim depreciation!

The ATO has recently announced a crackdown on property investors over-claiming deductions on holiday homes; this includes depreciation.

If you’ve been on holiday, it’s straightforward to get caught up in the romance of owning your own holiday home.

Depreciation Calculator

The purchase price, stamp duty and mortgages offset by the rental income can make it look good in the halo of optimism that comes with the first flush of real estate lust.

The “we have got to have it, and we will make it work” compulsion is common when purchasing lifestyle properties.

Holiday houses can be depreciated if rented out to a third party, but that doesn’t mean you can’t stay there when you want to.

As long as it’s available for rent most of the year, you can block out two weeks over Christmas and claim the depreciation pro-rata.

You are still entitled to that deduction regardless of how many weeks the property is rented out, as long as it was available for the full 50 weeks.

TIP – Make sure you pro-rata any depreciation claim if you have used the rental property personally.

If you own holiday home – make sure you start the ball rolling with a depreciation schedule by getting a quote here.

Have you ever thought about renting a room out in your house on Airbnb for a few extra bucks?

I know I have.

AirBNB Depreciation
Airbnb Depreciation

As you probably know, Airbnb is a website that allows you to offer short-term accommodation to others, or you stay at someone else’s place. But what are the tax deductions implications, and can you claim holiday home depreciation?

The simple answer is Yes! If you rent out one bedroom of your two-bedroom apartment… you can claim depreciation based upon a pro-rated ratio.

This tends to be based upon a floor area calculation and split between the portion set aside to produce income and that portion not.

BUT there is a big catch.

By renting out part of your house, you will not be able to claim the full Capital Gains Exemptions that applies to your primary residence.

So it would help if you did a cost-benefit analysis that takes into account rental income received, depreciation claimed and potential Capital Gains Tax (CGT) payable.

TIP: If you think the market has peaked and will be flat for a while – then this strategy could be worthwhile. Get the property valued when you start renting out the property, and if the value is the same in 10 years…well, there would be no CGT payable anyway!

Holiday Home Depreciation

Can I still claim depreciation on plant and equipment on my holiday home if I use it twice a year?

This is the most significant grey area of all the legislative changes, in my view and one that will require further clarification moving forward.

The Government in the Housing Tax Bill Explanatory Memorandum states that if a property is used in an “incidental way” or “occasionally used”, your depreciation eligibility on the Plant & Equipment does not stop if you acquired the plant & equipment before The Budget in May 2017.

Incidental Use is described as:

“Use is incidental if it is minor in the context of the overall use and arises in connection with another non-incidental use – for example, staying at the property for one evening while carrying out maintenance activities would generally be incidental use.”

Occasionally Used is described as:

Spending a weekend in a holiday home or allowing relatives to stay for one weekend in the holiday home free of charge that is usually used for rent would generally be occasional Use. “

It’s a bit vague.

Does one week a year over Christmas nullify your claim? What about if you stay for Easter and Christmas?

What does this mean for all the Airbnb landlords out there that claim house depreciation but move in when times are quiet but acquire the property before the budget? Did they go into that investment doing the maths on claiming the depreciation on a pro-rata basis based on the tax laws at the time?

If they use the apartment for an unknown time, they may disallow the depreciation deduction.

This is when the ATO wants to target Airbnb hosts and pro-rata any capital gain tax exemption that may be applicable.

Go figure.

About Tyron Hyde

Tyron Hyde is the CEO of Washington Brown Quantity Surveyors. He is regarded as one of the industry's leading experts in property tax depreciation, is regularly quoted in the media & asked to speak at conferences.

Learn why more Property Investors Choose Washington Brown to prepare their depreciation reports.