Holiday Homes and Tax

Want to buy a holiday home and claim it on tax?

It’s not as simple as it sounds…

Find out what the ATO requirements are before you start.

  1. The only Expenses that can be deducted are those incurred in earning Rental Income, so nothing can be claimed that is incurred before the first rental income.  Any repairs, refurbishment that you do to the property before it is first rented are considered by the ATO as
  2. Capital Expenses and are held to be claimed against Capital Gains Tax when you sell the property in the future.  See ATO fact sheet here 
  3. Most of the costs of purchasing the property are considered Capital Expenses and cannot be deducted against rental. The only exemptions to this will be any council rates, water rates and land tax that might be included in the settlement statement but cover periods of time when the property is rented.
  4. This link here  about the ATO’s guide to Holiday Home Rentals is quite is very detailed and contains some good examples of how to calculate the percentage of costs that can be claimed against the rental income, particularly where you are also using the property for your own holidays.
  5. If you are managing the rentals yourselves, you need to record the periods rented and amounts of rent received. This can be done on a spreadsheet or in a diary.  Online bookings systems like AirBNB and Stayz will have annual summaries of rents and bookings available to you. They also provide this information to the ATO under the ATO’s cross-matching systems.
  6. You also need to record the amounts you spend on the property and the date of the expense and details, saving receipts as well. It can be useful to keep a separate bank account and credit card just for the rental property expenses, so they are easy to find.  There are some online bookkeeping systems that can help with this, but they are generally a monthly subscription and are getting more expensive. A spreadsheet also works.
  7. If you are buying long-term items for the property that cost more than $300, like furniture & appliances, they need to be depreciated rather than claimed outright in the first year. A separate list of these with installation date and cost would be useful so we can set up a depreciation schedule in the first year.
  8. Depreciation of the actual building structure can also be a tax-deductible cost. There are numerous quantity surveying companies that will prepare the ATO-required schedule of Capital Works that can be claimed.
  9. The costs of obtaining finance to purchase the holiday home are generally deductible over a 5 year period, in proportion to the percentage that the home is rented or available to be rented.
  10. ATO fact sheet for interest deductions can be found here

If you would like to learn more about how this may impact your tax position, please get in touch.