New Tax Office guidance puts holiday homes firmly in the spotlight.
If your property looks more like a private getaway than an income-producing investment, some of your deductions could disappear entirely. Simply listing the property for rent may not be enough.
What’s the issue?
A holiday home can include any property used, or kept available, for holidays or recreation by you, your family or friends. It could be a beach house, ski chalet or even a city apartment.
If the property is mainly used to earn rental income, the usual deductions can generally continue to be claimed, subject to adjustment for any private use.
But the Tax Office will look at the real pattern of use, including:
private use compared with rental use;
whether you reserve the property for yourself during Christmas, school holidays or other peak periods; and
whether it is genuinely available for rent at market rates without unreasonable restrictions.
What’s at stake?
If the property is not mainly used to earn rental income, deductions for costs such as interest, rates, body corporate fees, capital works and depreciation may be denied.
Direct rental costs, such as advertising, booking commissions and cleaning after paying guests, may still be deductible.
Swimming between the flags
The Tax Office has introduced green, amber and red risk zones to indicate how likely it is to review your position. Limited private use and strong rental occupancy generally points towards green, while significant peak-period private use or restrictions on renters can move you towards red.
What should you do?
Keep good records showing when the property was rented, when it was genuinely available for rent, when it was used privately, and your advertising and booking history.
If you own a holiday home that you also rent out, have a chat with us. We can help you work out where you sit under the Tax Office’s new guidance and whether it changes the deductions you can claim.