Incorrectly claimed rental deductions, specifically ones relating to holiday homes, are being targeted for audit by the ATO.
The focus on deductions being claimed will be based on information being shared between the ATO and holiday rental providers. The target will be over the next four years, however any consistent misuse of the rental deduction may bring a backdated audit process.
If you own a holiday home, you can only claim tax deductions for expenses to the extent the home is rented out or genuinely available for rent.
Holiday homes that are not genuinely available for rent
Factors that may indicate a property is not genuinely available for rent include:
- it is advertised in ways that limit its exposure to potential tenants – for example, the property is only advertised
– at your workplace
– by word of mouth
– on restricted social media groups
– outside annual holiday periods when the likelihood of it being rented out is very low
- the location, condition of the property, or accessibility to the property, mean that it is unlikely tenants will seek to rent it
- you place unreasonable or stringent conditions on renting out the property that restrict the likelihood of the property being rented out – such as
– setting the rent above the rate of comparable properties in the area
– placing a combination of restrictions on renting out the property – such as requiring prospective tenants to provide references for short holiday stays and having conditions like “no children” and “no pets”.
– setting the minimum night stay to five but booking Friday-Sunday for personal use
- you refuse to rent out the property to interested people without adequate reasons.
These factors generally indicate the owner does not have a genuine intention to make income from the property and may be reserving it for private use.
If you have a holiday home being claimed in a rental schedule, a clear understanding of the allowable deductions is important.