Do you have a Holiday Home?
If you have a holiday home or any residence that is not considered your main residence, the taxation treatment during the ownership period and subsequent sale is dependent upon the actual use of property.
Holiday Home – Not rented out
If the holiday home is not rented out, no expenses are included in your tax return until you sell the property and have a capital gain or loss. Costs incurred during the ownership period of the property such as council rates, insurance, interest on loans, improvements, repairs & maintenance can be included in the cost base for Capital Gains Tax (CGT) calculation purposes. Therefore, keep detailed records of all property related expenses for the entire period of ownership.
Holiday Home – Rented Out
If the holiday home is rented out, then all rental income is included in the owner’s tax return. Expenses for the property can be claimed as a deduction to the extent they were incurred in producing rental income. Expenses will need to be apportioned in the following circumstances:
- Property was only genuinely available for rent part of the year
- Property was used for private purposes for part of the year
- Only part of the property is used to earn rent
- Less than market rent is charged to family & friends
Holiday Home – Not genuinely available for rent
Deductible expenses for a property may be restricted if a property has factors which indicate it is not genuinely available for rent such as:
- Advertising is only via a workplace, word of mouth, or restricted social media pages
- Availability is only outside of annual holiday periods
- The location, condition or accessibility of the property is prohibitive to prospective tenants
- Unreasonable or stringent conditions attached to renting the property e.g. rent too high or specifying no children
Holiday Home – Part Year Rental
If the holiday home is rented out and also used for private purposes, expenses must be apportioned. Expenses are non-deductible for any period of private use. When a property is rented to family and friends at less than market value, the deductions for that period are limited to the amount of rental income received.
If you would like to discuss your taxation requirements in relation to your holiday house, please phone us on 03 9693 5000 or email us at office@dfknugents.com.au.
