Holiday Home Tax Deductions                                                                       

Many of us love to get away for a holiday whether it be to the beach or the country and some of us even have a holiday home we can retreat to. If you own a holiday home in Australia, you may be eligible for tax deductions. Holiday homes can be a great source of income, but they also come with their own set of expenses. Knowing what you can and cannot claim as tax deductions is crucial to maximizing your return on investment.

To claim tax deductions for your holiday home, you must keep accurate records of all income and expenses related to the property. The Australian Taxation Office (ATO) is very vigilant with tax claims relating to holiday homes to ensure people aren’t overclaiming deductions. Keeping receipts and invoices for all expenses relating to the property is very important.

Tax deductions on rental holiday homes can vary depending on several factors such as the number of days the property is rented, the number of days it is used for personal use, and the expenses incurred to maintain the property. Below, we will discuss the tax deductions available to holiday home owners.

Rental Income

Any rental income received from the holiday home is taxable and must be reported on your tax return. This includes rental income received from platforms like Airbnb.

Apportionment of rental expenses (e.g. private use of the property)

There may be situations where not all your expenses are deductible, and you need to work out the deductible portion. To do this you subtract any non-deductible expenses from the total amount you have for each category of expense; what remains is your deductible expense.

You will need to apportion your expenses if any of the following apply to you:

• your property is genuinely available for rent for only part of the year.
• your property is used for private purposes for part of the year.
• only part of your property is used to earn rent.
• you rent your property at non-commercial rates.
• your investment loan is partially used for private purposes.

Interest on loans

If you have taken out a loan to purchase your holiday home, you can claim the interest you paid on the loan as a tax deduction. However, you can only claim the interest on the portion of the loan that was used to purchase the property, and not any personal expenses related to the property. If you have a mortgage on the property, you can claim the interest on the mortgage repayments as a tax deduction.

It is important to consider when redrawing on a loan for a holiday home, as if the money redrawn is used for private purposes then this portion of the loan would not be deductible.

Property management expenses

If you hire a property manager to take care of your holiday home, you can claim the management fees as a tax deduction. Property management expenses can include advertising for tenants, cleaning, maintenance, repairs, and agent fees. However, you cannot claim expenses for any personal use of the property.

Depreciation

You can claim depreciation on the assets of your holiday home, such as furniture, appliances, and fittings. The ATO has specific guidelines on how to calculate depreciation, and it is important to keep accurate records of your assets and their value.

Council rates, water rates, and insurance

You can claim council rates, water rates, and insurance premiums as tax deductions. However, you cannot claim any amounts that relate to personal use of the property.

Repairs and maintenance

If you make repairs and carry out maintenance on your holiday home, you can claim these expenses as tax deductions. However, you cannot claim any amounts that relate to personal use of the property. It is important to keep receipts and invoices for all repairs and maintenance work done on the property.

Capital gains tax

If you sell your holiday home, you may be subject to capital gains tax. It is important to keep accurate records of the cost of the property, any improvements made, and the selling price to calculate the capital gains tax correctly.

It is important to note that you cannot claim tax deductions for any expenses related to personal use of the property. For example, if you use your holiday home for personal vacations for 6 months of the year and rent it out for the other 6 months, you can only claim tax deductions for expenses related to the rental period.

Owning a holiday home can be a great source of income, but it is important to understand the tax deductions available to you. By claiming all eligible tax deductions, you can reduce your tax liability and maximize your return on investment.

More information on the deductions and tax implications can be found here.

If you have any questions please do not hesitate to contact your Hall Chadwick QLD advisor.