Assistant commissioner Kath Anderson reminded holiday home owners this morning that “as Australians enjoy the Easter break, they should be aware that 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,” she said.
Continuing, Ms Anderson explained that deductions can only be claimed if the property is actually available for rent.
This means holiday home owners can’t claim for periods in which the property is used by family or friends, rent-free.
“It’s not OK to expect everyone else to pay for your holiday,” she said.
It’s also important to remember that if a property is rented out at mates rates, deductions can only be claimed on expenses reaching the amount of income received, Ms Anderson added.
An additional problem is holiday home owners who claim their property is available for rent but actually have little desire to rent it out.
“We see 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,” Ms Anderson said.
“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.”
She said the ATO investigates tip-offs in addition to disproportionate claims.
With this in mind, the assistant commissioner called on property owners to double-check all claims prior to lodging their tax returns, even when submitting via a tax agent.
“Be sure to 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,” Ms Anderson said.
“You should also [keep] records of who stayed at the holiday home and when, including the time you and your family stay at the property.”
How do I know if I’m following the rules?
The ATO said there are four rules to remember to ensure that a holiday home is genuinely available to rent.
1. Is it advertised?
In order for a property to be available for renting, it needs to be advertised to a wide audience. This means advertising via a real-estate agent or property site is not necessarily enough, and neither is advertising via word of mouth or locally.
2. Is it in good condition?
Renters won’t want to rent a property in poor condition and in a poor location, the ATO said. If it’s dilapidated or in a remote location it might not be realistic for owners to expect renters to apply.
3. Are you charging market rates?
If a property owner is charging rates at a level that would deter tenants then it could be considered to be not genuinely available to rent. Similarly, if a home owner is renting it out to family and friends for free then it also won’t meet this rule.
4. Are you accepting tenants?
If you’re refusing tenants for no good reason then the ATO could conclude that you don’t genuinely intend to derive income from it, and are instead reserving it for private use.