ATO turns up the heat on holiday home deductions.

If your holiday home is rented out, you need to include the rental income you receive in your tax return and can also claim expenses for the property based on the extent that they are incurred for the purpose of producing rental income.

An alert from the ATO has recently been issued warning about applying the correct proportions when claiming holiday home deductions.

The following questions will assist in determining the income to be declared and expenses claimable:

• How many days was it rented out and was the rent in line with market values?

• Where do you advertise for rent and were any restrictions placed on tenants?

• Have you, your family or friends used the property?

The above questions will avoid claiming deductions for periods where the rental property was either used privately or not at all and be wary of claims for deductions when the property was rented at below the market rate.

It is important for owners to understand that a full deduction will only be available for expenses incurred to the extent that the home is being rented or is genuinely available for rent at arm’s length, market rates. For any period in which the property is rented for lower than market rates, the deduction will be limited to the rental income which is received.

If you don’t rent out the property, you do not include anything in your tax return until you sell it. When you sell the property, a capital gain or loss will arise.

If you need assistance with your holiday home income and expense claims or would like to discuss your options, please get in touch with us.