Taxpayers claiming deductions on holiday homes are in the ATO’s sights.
The ATO is concerned that people with holiday homes are claiming more deductions than they should and have published the starting questions they will be asking to scrutinise claims:
- How many days was it rented out and was the rent in line with market values?
- Where do you advertise for rent and were any restrictions placed on tenants?
- Have you, your family or friends used the property?
The problem is blanket claims for the holiday home regardless of the time the home was rented out or available for rent. You will need to apportion your expenses if:
- Your property is genuinely available for rent for only part of the year.
- Your property is used for private purposes for part of the year.
- Only part of your property is used to earn rent.
- You charge less than market rent to family or friends to use the property.
The ATO has also indicated that deductions might be limited if a property is only made available for rent outside peak holiday times and the location of the property (or other factors) mean that it is unlikely to be rented during those periods.
The regulator is also likely to be suspicious if the owner claims that the property was genuinely available for rent during peak holiday periods but wasn’t deriving any income during those periods. This might indicate that the property was really being used for private purposes or that the advertised rental rate was unrealistic.
Whether a property is genuinely available for rent is a matter of fact. Factors that help demonstrate a property is genuinely available for rent include:
- it is available during key holiday periods
- kept in a condition that people would want to rent it
- tenants are not unreasonably turned away
- advertised in ways that give it broad exposure to possible tenants, and
- the conditions are not so restrictive that tenants are unlikely to rent the property.
If you are unsure how your holiday property might be viewed, please reach out to us for an assessment.