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.
Holiday rentals are often managed by an agent or real estate company, for a fee. Although the operating costs can be higher than other rentals, the combination of high rents, hands-free operation, property value growth and tax deductions makes the holiday rental property an attractive investment for some people.
Getting your tax return done right is very important to ensure you get every tax advantage you deserve. You can claim a lot of your expenses, but the ATO watches carefully and they are remarkably good at detecting false or “unsubstantiated” claims. Let’s cover some basics to help ensure you get the tax deductions you deserve for your holiday rental property, and that you claim your expenses the right way…
The first thing to know is that keeping records about your expenses is not optional. If you don’t save receipts and keep records, you could lose out on thousands in tax deductions every year – and you’ll be vulnerable to serious ATO trouble if your claims are reviewed or audited.
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 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. 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?
Expenses you can claim as tax deductions for your holiday rental property 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 and available for rent).
In the Etax.com.au online tax return, at the Income section, you can choose “Rent” as an income source 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?
You can claim reasonable tax deductions for your holiday rental if you need to travel specifically to undertake inspections or make repairs. If you are making repairs while holidaying yourself, you won’t be able to claim these expenses, so make sure the trip is genuinely and solely for the right reasons, otherwise it will be classed as travelling for personal/private use.
If you decide to combine your trip between making repairs and holidaying, be sure to correctly add-up the expenses that relate directly to the repairs/maintenance and keep proof of those expenses. Don’t try to claim extra travel costs that were for personal holidays, etc. – it’s just not worth the trouble and worry that arises if you try to be sneaky.
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, such as claiming expenses for the property for the duration of the lease.
However, with a holiday rental you’ll need to divide your claimable expenses if your holiday home is not genuinely available or is ever used for personal purposes such as:
- When you rent it out free of charge privately to friends, family or colleagues.
- When you discount the rent to family or friends and charge them less than usual.
- When you use the property yourself.
- When you choose to leave it vacant and don’t advertise it for rent (or don’t accept rental offers).
2. Is my holiday home “genuinely available”?
The ATO can crack down on holiday homeowners who don’t genuinely try to rent out their property. A few indicators of this include;
- Unreasonably limited advertising, such as advertising only at work, to friends or outside common holiday periods.
- Unreasonable conditions for renting, such as requiring references for short stays or restricting children and pets, which significantly limits the pool of potential renters for a property.
- Rejecting rental enquiries or offers for inadequate reasons.
The ATO may review the above issues (and more) to determine if the property is genuinely a holiday rental property (or is 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 relating to the property. Hold on to your receipts anyway – when it comes time for you to sell, you’ll 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. You can’t claim tax deductions for a holiday rental property if it is being kept vacant or used for non-rental or private purposes.
For example, Dave and Jess own a holiday rental property on the Sunshine Coast.
The 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 is available to rent for $500.00 per week. It was occupied for 34 weeks in the year, earning $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
If you share your property with a partner, you’ll need to claim deductions correctly. The ATO watches out for couples who split income and deductions unequally for tax advantages, and even hands out penalties, so it’s better to do it right. If two partners own equal shares of a property, they can each claim equal shares of the expenses. If one partner owns 20% of the property, that person can only claim 20% of the expenses. Simple!
These tips are of general nature only. Speak to a qualified tax agent to get advice on the tax breaks that are relevant to your situation.
If you lodge your return at etax.com.au, your return will be reviewed by two accountants who’ll check for mistakes, extra deductions and corrections before lodgement.
