The Australian Taxation Office (ATO) has reinforced its guidance around holiday home tax deductions, highlighting how owners must correctly report income, apportion expenses and ensure their property is genuinely available for rent to claim deductions.
With many Australians owning coastal, regional or short-stay properties, understanding these rules is essential to avoid incorrect claims and potential compliance issues.
Declaring Income from Holiday Homes
If your holiday home is rented out – even for part of the year – you must declare all rental income received in your tax return.
However, the deductions you can claim will depend heavily on how the property is used and whether it is genuinely available for rent during the year.
If your holiday home is not rented out at all, generally no income or expenses are included in your tax return until the property is sold, when capital gains tax (CGT) considerations apply.
Understanding Deductible Expenses
You may claim deductions for expenses incurred in producing rental income. Common deductible costs may include:
- Interest on loans used to purchase the property
- Property insurance
- Council rates and maintenance costs
- Agent fees and advertising expenses
- Decline in value of assets and capital works deductions (Australian Taxation Office)
However, deductions must reflect the extent to which the property is used to earn income.
Expenses That May Be Fully Deductible
Some costs directly related to renting the property can be fully claimed, such as:
- Real estate agent commissions
- Advertising costs
- Costs relating to tenant-caused damage or rubbish removal
Apportionment Rules – Private Use Matters
Many holiday homes are used partly for personal holidays and partly to generate income. In these cases:
- Expenses must be apportioned between private and rental use.
- You cannot claim deductions for periods when the property is used privately or is not genuinely available for rent. For example, cleaning or repairs after your own stay are not deductible.
If you rent the property to family or friends at below-market rates, deductions for that period are generally limited to the amount of rent received.
Genuine Availability for Rent
The ATO is paying closer attention to whether properties are genuinely available for rent. Indicators that a property may not be considered genuinely available include:
- Limited or restricted advertising
- Setting unrealistic rental prices
- Blocking out peak rental periods
- Imposing unreasonable conditions that discourage tenants
If the property is not genuinely available, deductions may be denied for those periods.
Record Keeping Is Essential
Owners should maintain detailed records of:
- Rental income received
- Advertising and management activities
- Periods of private use
- Expenses incurred and invoices
Accurate documentation supports your claims and ensures compliance with ATO requirements.
How to Prepare and Stay Compliant
Holiday home owners should:
- Review how their property is used throughout the year
- Ensure the property is genuinely available if claiming deductions
- Keep clear records of income and expenses
- Seek professional advice where needed
Need Assistance?
Understanding holiday home tax deductions can be complex, particularly where there is mixed private and income-producing use.
If you require assistance reviewing your property deductions, structuring your investment or ensuring compliance with the latest ATO guidance, please contact Roy A McDonald Pty Ltd Accountants. Our team is here to help you stay compliant and maximise your financial outcomes.
