ATOAustralian Taxation OfficeHoliday HomePropertyRental PropertiesResidential Propertytax

Taxation Treatment of Holiday Homes

A holiday home is a property that a person owns, and they rent out, but this rent is quite often not for the full year, but only for the period of time the person and their friends and family are not staying in that holiday home.  The traditional holiday home is often a unit near a beach on the Gold Coast or some other tourist location but can basically be any property that is rented for most of the year, but certain times of the year the owners of the property or their friends, family and children stay in the property and it is no longer available to the public at large.

The Australian Taxation Office is always on the hunt for rental properties that they do not believe are genuine or where the taxpayer is incorrectly or falsely claiming tax deductions that they are not entitled to.  This could simply be from the taxpayer not being aware of these rules, to the taxpayer actively making claims for tax deductions when the property is used for personal use with no adjustments being made.  The ATO reminds taxpayers of these rules that deductions can only be claimed where the property is genuinely rented out or, if not, on a commercial basis that deductions can only be claimed up to the amount of income received.  The problem with holiday homes is that taxpayers purchase these assets and are often unaware of these rules and unless their tax agent specifically states these to them during the yearly return, people may never learn about this.  The ATO have concerns about this knowledge gap and the fact that the majority of rental properties are negatively geared, have concerns that people are inappropriately making claims for tax deductions they are not allowed.

Obviously, a taxpayer who holidays in fabulous tourist locations across Australia love the idea of owning a rental property that they can holiday in and claim tax deductions for; the problem lies in is it genuinely available for rent.  The ATO actually check these details and upon investigation find that there is little intention of renting by the taxpayer or significant personal use.  This can be done by simple searches on the various listings for property websites that are easily accessible by the ATO or contacting the renting agent direct for instructions from the taxpayer about advertising and renting the property out.  This is an area of continual surveillance by the ATO and the consequences of not accurately recording these can be as simple as a written warning, to a reduction of expenses claiming in the taxpayer’s return, to having the rental property being completely removed from being claimed in the taxpayer’s income tax return with interest and penalties being applied.

If you would like to have a discussion about holiday homes, please do not hesitate to contact us.


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