In the recent past, the ATO has been actively reviewing claims of taxpayers who own holiday homes with a view to cut down on rental deductions which taxpayers may not be eligible to claim. Using the data matching system, the ATO is able to detect unusual claims and is writing to a large number of property owners advising them about claiming deductions only which they may be entitled to.
The ATO allows deductions for an investment property which are actively available for rent and if the holiday home is predominantly used for investment purpose and not private use. The ATO could look at the circumstances and various aspects to verify that the rental deductions are being claimed in relation to the corresponding income and that the deductions being declared are purely business/investment related. In case the income does not cover the entire financial year and if the deductions seem too high in comparison then the ATO may audit/review such tax returns. Below are some aspects to consider in determining whether the property was genuinely available for rent.
- The owner must take sufficient steps to advertise the property for rent which caters to a wider population than just locals.
- The property must be maintained in a reasonably good condition to be considered by potential tenants to live in.
- Weekly rental price should be comparable according to standard market prices. Significantly higher or lower rental prices may suggest that the owner is delaying the process of renting out the property or using it as a tool for negative gearing or making a high private use of the property.
- All offers from potential tenants must be considered at its merit before accepting or refusing as only refusing tenants without any appropriate reasoning could trigger misleading perceptions to the ATO.
Taxpayers have to be very cautious as any red flags identified could prompt as investigation by the ATO and will open the taxpayers for scrutiny. Taxpayers should ensure that the deductions are claimed only for the time period when the property was rented out or available for rent. It is advisable to maintain records for the dates the property was rented and vacant with appropriate reasoning of vacancy. This also applies to owner occupiers renting a part of their home via sharing economy websites and apps such as AirBNB. Also accurate records would need to be maintained to calculate the CGT on a property.
If holiday home rental deductions are applicable to your circumstance or if you are unsure of your rental deductions and claims then please let us know about your concerns. Give us a call today on 03 8609 1889 or email us on info@a1accountants.com.au and one of our friendly staff will be able to assist you with your queries.