Tax Considerations for Holiday Homes That Are Rented Out
If you own a holiday home, you may choose to rent it out during periods when you are not using it yourself. While this can provide additional income, there are several tax issues you need to be aware of. If you are unsure how these rules apply to your situation, it is important to seek professional advice.
Rental Income and Deductible Expenses
If your holiday home is rented out, any rental income you receive is assessable and must be declared in your tax return. You can claim deductions for expenses relating to the property, but only to the extent that those expenses are incurred in earning rental income.
When Expenses Must Be Apportioned
Expenses must be apportioned where:
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The property is genuinely available for rent for only part of the year
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You use the property yourself for part of the year
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Only part of the property is used to earn rental income
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You charge less than market rent to family or friends
In these situations, only the portion of expenses that relates to earning rental income is deductible.
Fully Deductible Rental Expenses
Expenses that relate solely to renting out the property do not need to be apportioned and are fully deductible. These include:
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Real estate agent commissions
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Advertising costs for tenants
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Phone calls made to tradespeople to repair tenant-related damage
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Costs of removing rubbish left behind by tenants
Because these expenses are directly connected to earning rental income, they can be claimed in full.
Expenses That Are Not Deductible
No deduction can be claimed for expenses that relate solely to periods when the property:
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Is not genuinely available for rent
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Is used for private purposes
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Relates to parts of the property that are not rented out
For example, the cost of cleaning the holiday home after you, your family or friends have used it, or repairing damage caused during your own stay, is not deductible. These costs relate to private use rather than income production.
Expenses During Vacant Periods
Expenses may still be deductible during periods when the property is not actually rented, but only if the property is genuinely available for rent during that time.
What Does “Genuinely Available for Rent” Mean?
Several factors may indicate that a property is not genuinely available for rent, including:
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The property is advertised in a way that limits exposure to potential tenants, such as only advertising at your workplace, by word of mouth, or in restricted social media groups
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The location, condition or accessibility of the property makes it unlikely that tenants would rent it
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You impose unreasonable or restrictive conditions, such as charging rent well above the market rate for comparable properties in the area
Where a property is not genuinely available for rent, expenses incurred during those periods are not deductible.
Understanding how these rules apply is critical to ensuring you claim the correct deductions and avoid issues with the ATO. If you are unsure about how to apportion expenses or whether your property is genuinely available for rent, professional advice can help you manage your tax obligations correctly.
Speak to one of our accountants if you have any questions about the changes in tax for 2024.
