The ATO currently have an increased focus on rental property deductions and are paying close attention to excessive deductions claimed for holiday homes.

What does this mean for you?

Holiday homes that you rent out

If you rent out your holiday home, you can claim expenses for the property based on the proportion of the year that it was rented or was genuinely available for rent.

The ATO will not allow you to claim deductions where the property is not genuinely available for rent.  Factors that may indicate whether it is not genuinely available for rent include:

• It is advertised in ways that limit its exposure to potential tenants
• The location, condition of the property or accessibility to the property mean that it is unlikely tenants will rent it
• The rent is above the rate of comparable properties in the area
• You refuse to rent out the property to interested people without adequate reasons

These factors generally indicate that the owner does not have a genuine intention to make income from the property.

You also have to apportion your expenses if the property is used:

• For private purposes for part of the year - such as if you use it yourself or allow family or friends to use it free of charge
• By family or friends and you charge less than market value rent

Holiday homes that you do not rent out

If you do not rent out your holiday home, you cannot claim expenses for the property and do not include anything in your tax return until you sell it.

Claiming deductions for a holiday home you both rent out and use privately

If you rent out your holiday home and also use it privately, you cannot claim deductions for the entire year.  Your expenses are apportioned on a time basis where the property is used for private purposes, including by yourself, family or friends free of charge.

If you rent your holiday home to family or friends below market rates, your deductions are limited to the amount of rent received.

Please contact KK Partners to discuss your situation if you think this may apply to you.