Holiday homes that taxpayers rent out
Gavin: The ATO has updated its information guide on claiming deductions on holiday homes. This may have something to do with its stated intention to increase its audit focus on holiday homes that are rented out.
Clients with such holiday homes may want to take notice of the following.
Claiming deductions on holiday homes
The principles that apply to a rental property also apply to a holiday home if it is rented out.
If a taxpayer rents out their holiday home, they can claim expenses for the property based on the proportion of the income year it was rented out or was genuinely available for rent.
They must apportion their expenses if the property is used:
- for private purposes for part of the year – such as when they use it themselves, or allow their family, relatives or friends to use it free of charge; and
- by family or friends for part of the year and they are charged less than market rent.
If their holiday home is rented out to family, relatives or friends below market rates, their deductions are limited to the amount of rent received for that period.
Tax Tip: Keeping records for CGT purposes
Gavin: Clients who own holiday houses should be aware that they need to keep records of their expenses.
If they make a capital gain when they sell the property, the proportion of expenses (interest, insurance, maintenance costs and council rates) they could not claim a deduction for are taken into account in reducing the amount of their capital gain.
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