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Attention! If you have a holiday investment home, you will be interested in this.

holiday home tax deductions

The Australian Tax Office (ATO) has begun focusing on ‘holiday home’ investors to get you up to scratch on the current tax situation.

Why the sudden shift in focus?

This alteration in tactics is due to the ATO growing concerns with landlords and over-claiming on tax deductions for intervals when the property is not being rented.

The Australian Tax Office has stated they will be sending letters to taxpayers in roughly 500 postcodes around Australia. To remind them to only claim on the deductions they are entitled to. This means only claiming for the duration in which the holiday house was rented out or genuinely available for rent.

What does genuinely available for rent entail and how is it determined?

A property is genuinely available for rent if:

An absence of this crucial factor genuinely indicates that the owner does not have the genuine intention to make income from the property.

For example, if a property owner is only advertising their property at their workplace, it is generally not deemed ‘genuinely available for rent.

Holiday home tax benefits

There are actions you can take to ensure the property is ‘genuinely available for rent’.

This is useful in proving that the property is genuinely available for rent by opening your resources to as large an audience as possible.

It is helpful to keep records of any seasonal variation analysis and reasons for any price adjustments throughout the year.

Also, keep a record of advertisements you placed in newspapers, magazines, booking agencies, etc.

Don’t restrict the property’s availability for private use during peak periods, and don’t create restrictions on a property’s availability on weekends.

Also, don’t place too many restrictions on the tenants in the property.

Please note, there are some deductions that cannot be claimed under any circumstances. These include:

There should be no reason you are not ATO compliant by sticking to these guidelines!

Holiday home tax benefits

Vacation home rentals have become an excellent way for beginners to invest in property. Australia offers plenty of opportunities in this area. However, you also need to know about holiday rental tax deductions in Australia.

More novice investors have gone the holiday rental property route in recent years. ItIt’snderstandable. The country is a popular tourist destination, making a holiday home a viable investment property. Australia offers ample opportunities for savvy investors.

Typically, your agent will oversee the day-to-day management of your holiday rental. This makes money that you wouldn’t normally spend on an investment property.

However, you can command higher rents in return and experience more significant capital growth. Better yet, you can take advantage of the Australian Taxation Office (ATO) tax incentives for homeowners of holiday rentals in their tax returns.

Of course, you need to know how to get the most out of these tax deductions. This article shows you how.

Tip #1 – Save Your Receipts

Don’t fall into the trap of failing to keep track of your expenses. Due to post-holiday clean-ups, holiday homes tend to generate more expenses, so save all your receipts. Failure to keep good records could cost you thousands of dollars in tax deductions.

Australia also has a reasonably rigid system to verify holiday home deductions. If you don’t keep your receipts and maintain accurate records, you place yourself at risk. An ATO audit or review could result in the loss of money if your records don’t match your claims.

Keep receipts from when you rent out your holiday home separate from those related to personal use. This will prove invaluable, as you’ll discover below.

Tip #2 – Know When You Can Claim Holiday Rental Tax Deductions

You can’t claim deductions for your holiday property at all times. For example, any period you live in the property is not eligible for holiday rental deductions. You can only claim when you make the property available for rent or when you have a tenant.

Why is this important? Many novices mistake putting all of the property’s expenses together when claiming their tax deductions. Australia treats personal expenses differently from tenant expenses. As a result, you have to separate your holiday rental deductions from your costs.

This issue comes to the fore if the ATO makes a query on your claim. You’ll need to prove when your expenses occurred to show that you haven’t claimed a personal expense as a holiday rental deduction. If you can’t, you may face several fines and tax penalties. Furthermore, you may end up repaying taxes from previous years too.

Tip #3 – Know What You Can Claim For

Again, the ATO has specific guidelines in place for holiday rental tax deductions. You can claim for the following:

Remember that you can only claim these deductions when renting the property out. As a result, you can’t make these claims if you stay in the home or have family or friends let the property. You also can’t claim these expenses during periods when the property isn’t available for rent.

With that in mind, keep records of all of the above expenses.

Get a Quantity Surveyor tax depreciation report; this will save you thousands of dollars over the property’s lifetime.

Tip #4 – Claim during Inspections and Repairs

You can no longer claim deductions when travelling to the property to inspect it or repair its assets.

Be honest and rigorous in this process. Any costs that you can slightly relate to personal use shouldn’t go into your holiday rental deductions. Trying to sneak them through may result in fines if the ATO catches you.

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.