Its quite common in Melbourne for people to buy a Holiday House, or perhaps its been passed down through the family. In this day and age of Air BnB many will then rent their holiday home out for part of the year.
In this situation what happens with your tax return? If you are earning income from your property then this is Assessable Income and it must go on your Tax Return, this then opens up the possibility of claiming tax deductions for associated expenses, things like;
- Mortgage Interest
- Rates
- Insurance
- Land tax
- Repairs and Maintenance
- Cost of Property Leasing and Management
But you need to be careful while the Tax Law is seemingly quite clear about the fact you can claim these tax deductions Section 8-1 of the Income Tax Act states “You can Deduct from your Assessable Income any loss our outgoing to the extent (a) It is incurred in producing your assessable income”
It also states ““However you cannot deduct a loss or outgoing under this section to the extent that (b) it is a loss our outgoing that of a private or domestic nature”
Now this is where some people get into trouble with their Holiday House, what this section of the law is saying is that if you use your Holiday Home for a private use (like staying there with your family” you need to adjust for this on your tax return by reducing your claim for the deductions mentioned above.
This is an area that the Australian Tax Office is currently very active in so it really is important to be careful. When you see your Tax Agent make sure you fully disclose all the details of your Holiday Home for example how many nights you stayed there, did you rent your holiday home to family at a reduced price, is your properly listed at a fair market price all year round? These are the sort of things that are very important.
If you have any doubts about your Holiday Home tax claims please get in contact with us.
You can also read more on this comprehensive article from the Australian Tax Office