ATO's Concerns About Holiday Home Deductions:

Taxpayers claiming deductions on a holiday home are in the ATO’s sights.

The ATO is more than a little concerned that people with a holiday home are claiming more deductions than they should. They will be asking the following questions 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 arises when you make blanket claims for the holiday home without considering the time it 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.

You cannot claim deductions for the expenses that were incurred while privately using it or if it wasn’t available for rent at the time.

What will the ATO be most suspicious about?

The ATO indicates that you might face limited deductions if you only make a property available for rent outside peak holiday times. Its location (or other factors) also makes renting it unlikely 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 show a property is genuinely available for rent include:

Making it available during key holiday periods,
Keeping it in a condition that attracts renters,
Not unreasonably turning away tenants,
Advertising it broadly to potential tenants, and
Avoiding restrictive conditions that discourage renting.

For more information on the ATO’s stance on holiday homes, click here.

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This is general advice only and has not been prepared with your situation and needs in mind. For individual and personalised advice, we highly recommend that you seek out proper professional advice from your accountant and lawyer.