Holiday Homes – Taxable income and apportionment of rental tax deductions.

You have just spent a relaxing time with your family in your favourite holiday destination, and you are thinking, wow this would be an ideal place to purchase a holiday home for future vacations and as an investment for retirement. To offset the expenses of running your holiday home, your plan is to have the holiday home available for rent for most of the year and use the home for your holidays for some of the year.

How does the Australian Taxation Office deal with a situation like this, do they allow you to claim any deductions against the holiday home rental income?

First, we should look at what is assessable income. Renting your holiday home to family and friends at a minimal cost isn’t considered assessable income as it is merely reimbursing you for out of pocket expenses. The rent received via commercial renting, on the other hand, is assessable income. The next question, how are the expenses offset against the assessable income?

As with all tax deductions, the Australian Taxation Office requires that the personal use of a deduction can not be claimed. Clearly using the property for yourself and letting your family and friends use it at none commercial rental rates is personal use. Therefore, no deductions are allowed for the property’s expenses for these periods.

So, what you use and what friends and family use is not tax deductible, therefore the expenses for the rest of the year are tax deductible, well, no it’s not quite that simple. What you now need to prove is that you are actually trying to rent the property out, this will need to be done by going through a property agent, or maybe listing on an internet holiday rental website. The more that you can show that you are actively finding a tenant the more likely you will be able to claim the deductions for the property.

In one year if you personally use the property for say 6 weeks and actively look for tenants for the remainder of the year, then you can claim 46/52 of your deductions for the property. Also, bear in mind that while you are actively looking for tenants it doesn’t mean that your property needs to be tenanted 100% of the time.

To see what can be claimed. Look at my other post http://www.accountantplus.com.au/wordpress/?p=261