ATO focus on holiday home deductions

The ATO is focusing on taxpayers who claim deductions for holiday homes that are not actually available for rent or only available to friends and family.

While private use by family and friends of a holiday home is entirely legitimate, it does reduce your ability to earn income from the property. This, in turn, impacts the deductions you can claim. 

You can only claim deductions for your holiday home if your property is genuinely available for rent. You cannot claim for times when you were using it for your own personal holidays or letting friends and family stay rent-free. It’s not ok to expect everyone else to pay for your holiday. 

Holiday homeowners also need to remember that if their property is rented to friends and family at mates rates, they can only claim deductions for expenses up to the amount of the income received.

Besides holiday rentals, the ATO is also focused on other times when a property is not rented or genuinely available for rent. Some taxpayers claim their property is available for rent, but when the ATO investigates, it is clear they have little intention of renting it out.

The ATO sees things like unreasonable conditions placed on prospective renters, rental rates set above market rates or failing to advertise a holiday home in a way that targets people who would be interested in it.

Incorrect rental property claims will not go unnoticed 

Whether it is a genuine mistake or a deliberate attempt to over-claim, new technology, data matching and other systems allow the ATO to identify unusual claims.

Where something raises a red flag, it will be investigated. Property owners whose claims are disproportionate to the income received can expect scrutiny from the ATO.

All rental property owners should double-check their claims before lodging their tax return, even if submitting through a tax agent.

Make sure that you declare all rental income and only claim deductions for periods that the property is rented or was genuinely available for rent at market rates.

Keep accurate records of the income you receive from your rental property, expenses you incur and evidence of the property being rented or genuinely available for rent at market rates. 

Also record who stayed at the holiday home and when, including the time you and your family stay at the property.

For more information on holiday homes, visit ato.gov.au/holidayhomes

For more general information on rental properties, visit ato.gov.au/rental

Deductions are available if the property is genuinely available for rent. However, different rules apply if you’re renting out your private residence. For more information, visit ato.gov.au/sharingeconomy