If you own a holiday home, you can only claim tax deductions for expenses to the extent the home is rented out or genuinely available for rent. Even if you don’t rent it out, there are capital gains tax implications when you sell it.
Holiday homes – not rented out
If you own a holiday home and do not rent out the property, you do not include anything in your tax return until you sell it.
You should make an appointment with us to go through what can and can’t be offset against the sale of your holiday home to legally minimise its capital gain.
Holiday homes – rented out
The principles that apply to a rental property also apply to a holiday home if it is rented out.
If you rent out your holiday home, you can claim expenses for the property based on the proportion of the income year it was rented out or was genuinely available for rent.
You have to apportion your expenses between periods of:
- genuine rental
- use for private purposes – such as when you use it yourself, or allow your family, relatives or friends to use it free of charge
- use by family or friends when you charge less than market rent.
Holiday homes that are not genuinely available for rent
Expenses are only deductible if your holiday home is genuinely available for rent.
Factors that may indicate a property is not genuinely available for rent include:
- it is advertised in ways that limit its exposure to potential tenants – for example, the property is only advertised
- at your workplace
- by word of mouth
- on social media groups
- outside annual holiday periods when the likelihood of it being rented out is very low
- the location, condition of the property, or accessibility to the property, mean that it is unlikely tenants will seek to rent it
- you place unreasonable or stringent conditions on renting out the property that restrict the likelihood of the property being rented out – such as
- setting the rent above the rate of comparable properties in the area
- placing a combination of restrictions on renting out the property – such as requiring prospective tenants to provide references for short holiday stays and having conditions like “no children” and “no pets”.
- setting the minimum night stay to five but booking Friday-Sunday for personal use
- you refuse to rent out the property to interested people without adequate reasons.
These factors generally indicate you do not have a genuine intention to make income from the property and may be reserving it for private use.
If you rent out your holiday home and also use it for private purposes, your expenses are apportioned on a time basis. You cannot claim deductions for the proportion of expenses that relate to the private use.
Private purposes include use by you, your family, your relatives and your friends free of charge.
If your holiday home is rented out to family, relatives or friends below market rates, your deductions for that period are limited to the amount of rent received.
Note that from 1 July 2017 you can no longer claim travel costs that relate to you collecting rent, inspecting, maintaining and making repairs to the property.
Please contact The Quinn Group on (02) 9223 9166 or submit an online enquiry.