Danger, danger, holiday letting hosts! If you have been fudging the figures on your tax claims for your holiday home investments, the Australian Tax Office is coming after you.
Actually, the ATO has been issuing this warning almost every year since 2015, if not before.
There was a gap in 2020 and 21 for fairly obvious reasons, but the taxpersons are back – and now they have a raft of technology to help them track down the dodgers and fudgers.
Not least among them is the NSW register of holiday lets as well as online letting platforms such as Airbnb and Stayz which list when the property is available.
And ATO officers are not above putting in a booking request to see if it really is available when you say it is.
And, if you list it as available but refuse a reasonable request to let it, then they could cry foul.
The tax issue is that you may be claiming maintenance and other costs for periods when your property wasn’t actually available for rent.
You might also be letting it to family and friends for reduced rates – thereby reducing the income on which you could be taxed. And all of your claims have to be apportioned based on actual revenue-earning usage.
“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,” says this ATO information page.
“If your holiday home is rented out, you need to include the rental income you receive as income in your tax return.
“You can claim expenses for the property based on the extent that they are incurred for the purpose of producing rental income.
“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 provides more information on how to apportion expenses, here: Holiday home – part year rental.
The ATO website says expenses may be deductible for periods when the property is not rented out, provided it is genuinely available for rent.
Factors that may lead the ATO to decide a property isn’t genuinely available for rent include that it’s advertised in ways that limit its exposure to potential tenants.
These include that the property is only advertised at your workplace, by word of mouth, on restricted social media groups, and outside annual holiday periods when the likelihood of it being rented out is very low.
The location, condition of the property, or accessibility of the property may be taken to mean that it’s unlikely tenants will seek to rent it as would unreasonable or stringent conditions on renting out the property that restrict the likelihood of renting out the property.
These could include setting the rent above the rate of comparable properties in the area, placing a combination of restrictions on renting out the property and refusal to rent out the property to interested people without adequate reasons.
“These factors generally indicate the owner doesn’t have a genuine intention to earn rental income from the property and may have other purposes, such as using it or reserving it for private use,” says the ATO.