Why You Need to Be Wary of the Taxman If Trying to Claim for Holiday Home Rentals
Many Australians are choosing to look in different directions for their investments as a result of a fairly sluggish stock market. One option they consider is the purchase of a holiday home for rental. This can be a lucrative proposition, but you have to be careful when claiming specific costs related to these rentals, against your tax. What has the ATO been looking at recently and what do you need to be careful about?
When You Can and Cannot Claim
It's not uncommon for people who buy a holiday home to use it for themselves occasionally (perhaps as a summer and winter getaway), but to make it available for rent at other times. It's very important that you're clear on this issue, specifically as to how "available" the property actually is. The ATO will want to know that you are making a genuine effort to rent this property out, if you are to claim rental expenses as deductions on your return.
Be Careful of These Rules
From a bigger picture, the ATO will want to satisfy themselves that you only claim deductions for the part of the year that the property was either rented or was "generally" on the market. This means that if you had not actually placed ads for the property, or were relying on word of mouth to sell the available rental slots, you might not qualify.
Another red flag would be the condition of the property, its general accessibility or even its location, in terms of whether or not it was attractive to the rental market.
You cannot advertise a rental home but impose unreasonable conditions just to try and get around this rule either. If you have consistently advertised rates that are much higher than similar properties in the general area, then you will fail this test.
Renting to Family or Friends
Remember also that when apportioning how many weeks in the year are made available to the general rental market, the ATO will consider your private use to include any times that you offer the home to family or friends without charge. Similarly, if you only charge a nominal rent in this situation, this will be perceived to be contravening this clause as well.
You may find it difficult to determine whether or not you are able to claim certain expenses based on your particular circumstances. In this case, have a word with an accountant with knowledge of this area for more advice.