How Does My Holiday Home Impact Tax?
The Australian Tax Office (ATO) is stepping up its scrutiny of holiday home owners, writes Adelaide accountant Tony Vroulis.
The Australian Tax Office (ATO) is stepping up its scrutiny of holiday home owners. What does this mean for you and your holiday home?
Why The ATO is Concerned
The ATO has recently begun focusing on holiday home owners who have been renting out their properties for only a few weeks a year and then claiming full-year deductions in their tax return. This also applies to holiday home owners who make claims for expenses on a property that wasn't available for rent.
The ATO is preparing to closely examine holiday homes over the next few years with a view to potential audits.
Is yours in the spotlight?
What You Should Know
What you do with a holiday property is entirely your business. When it comes to taxation, however, you need to make sure that your reported expenses are proportional to the intended use of the home.
Expenses incurred in respect of the property should not be claimed in full if the home was both rented and privately used during the year.
Additionally, reporting deductions that relate directly to the repair and maintenance of the property are acceptable. But some specifications and restrictions apply here, as well.
What You Can Do
Prepare well in advance. Familiarise yourself with the taxation rules and requirements concerning holiday homes.
Here are a couple of crucial guidelines you should be aware of:
· You cannot claim anything on a holiday home that you do not rent until you sell it.
· You cannot claim deductions on a home that is not genuinely for rent (implied you intend to limit it to private use) due to:
o Excessive rental rate
o Unreasonable rental conditions
o Limited advertising for tenants
o Difficulty accessing property
o Property is kept off the rental market during peak rental seasons
When You Purchase a Holiday Home
You'll need to allow a few key factors to determine which structure you purchase the home through. Consider, for example:
· Debt - if your property is negatively-geared in a trust, then you won't be able to offset property losses against personal taxable income.
· Anticipated holding period - do you see this property becoming your retirement home? You may be able to claim a main residence exemption later on?
· Land tax - this rate varies depending upon how many properties an individual may own.
The ATO’s guide for holiday home owners may also help you.
Feeling overwhelmed? We recommend that you seek expert advice from an experienced accountant. To learn more about how your circumstances affect the tax position in relation to your holiday home, contact Wallace Vroulis Bond Chartered Accountants.