Have you been dreaming of purchasing an ‘investment’ holiday home that you might rent out “a couple of weekends a year”? And you’re probably planning on using it the rest of the time for yourself, right? Maybe you’ve thought you might be able to finagle some great tax deductions on the property too?

Well, you might want to think again.

The ATO has been monitoring more than 100,000 so called “investment properties” across Australia that are thought to double as family holiday homes.

It’s not that people have purchased holiday rental investment properties that’s the problem, but rather that they’re not actually renting them out or they’re claiming a significantly larger deduction than they’re realistically entitled to.

Real estate agents are known to have been given legal licence to rent out the premises, but each time an appropriate tenant is found, the agent is told to find someone else. And the property’s never actually rented out.

Or another case example cited by the ATO was a property that was only ever available for rental in the low season – with the inference that it was used by the family in the high season – but the maximum claimable had been claimed on the property. And in another example the property had such lengthy, difficult rental terms, no tenant was ever likely to agree to the terms.

So how do you make sure that you’re within the realms of what’s allowed on this one? Well in general terms – if it’s a ‘real’ rental property, it will have tenants for most of the period – allowing for the usual seasonal variations if it’s a holiday rental.

Of course you can still visit the property to stay or check on works, but if you’re using it for 2, 5 or 50% of the year that you seek advice on removing that percentage from what you’re attempting to claim.

The broad ATO ruling on such properties is that their deductions cannot exceed their income. According to the ATO, you can claim expenses relating to your rental property but only for the period your property was rented or available for rent; for example, advertised for rent.

Expenses can include, but are not limited to: advertising for tenants, borrowing expenses, capital works, decline in value of depreciating assets, interest expenses, pest control, repairs and maintenance and travel undertaken to inspect or maintain the property to collect the rent. However, if only part of your property is used to earn rent, you can claim expenses relating to only that part of the property.

If you’d like more detail about the expenses you are entitled to claim, you can find the ATO’s rental property expenses listhere.

Holiday rentals or investment properties can be a useful investment as part of an overall asset investment strategy. However, as with all things financial, you need to seek proper advice prior to investing to make sure that you’re investing in something that’s right for you and your future needs and that your expectations of what’s actually claimable are within the realms of ATO rulings.

As always, if we can help with advice on your deductibles or if you’d like help to plan for your future, we’d be delighted to help. You can call Kerry on 6023 1700 or drop us a note here.

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