Tax Tips for Owners of Holiday Homes and Rentals


Holiday rentals and homes can be a sure way to build your wealth and diversify your property portfolio but they can also carry nasty tax surprises now that the ATO is zoning in on this sector. The Australian Taxation Office is currently on a crackdown blitz that is targeting this real estate sector over what it considers “dodgy” tax deduction claims.

The ATO is wary over “careless” or dishonest holiday property owners that seem to be supplying the Australian Tax Office with inaccurate information on deduction claims. Due to this, the tax authority will be carrying out random auditing of the tax returns submitted by holiday property owners across Australia. The auditing will mostly be based on its benchmarking tools and will involve running comparisons with similar holiday properties in the same postcodes. The authority will also tap into third party data to validate the authenticity of the deduction claims, including data from some of the popular holiday rental listing sites in Australia.

Vast Experience

To spot dodgy claims, the Tax Office will be drawing on its vast experience honed over the years in spotting tax rorting tricks that property owners use to disguise some of their incomes or overstate the holiday property expenses. This audit blitz has been triggered after the authority spotted numerous errors in the tax returns filed by holiday property owners. The crackdown is likely to net some culprits considering that the Australian Taxation Office has a formidable intelligence gathering machine on their financial accounts of businesses across Australia.

Running Holiday Properties Comes with Costs

Running holiday properties is no doubt an expensive undertaking. There are a lot of expenses involved in keeping the property operational and up to the standard and quality expected by your target market. The costs are particularly steep for prestige properties situated in prime locations that attract discerning consumers and where competition is stiff. These properties also rent out for a premium price that can run into tens of thousands of dollars per week. However, at that price, the property owner also has to grapple with steep tax liabilities.

Common Tax Mistakes with Holiday Properties

On top of the high taxes, holiday property owners may also make certain mistakes that could put them in the radar of the ATO tax auditors. These include offering the “mates” rates or trying to claim tax deductions for a longer period than the holiday property was rented out to holidaymakers. The “mates rates” are preferential or discounted rates that are offered to friends or colleagues rather than being charged at the full rate on a commercial basis. The property owner may subsequently attempt to claim a tax deduction for that duration when the holiday property was not available for rent in the open market at market rates.

Another common mistake is where the property owner uses the holiday home themselves or let it out to friends or family for free or at steeply discounted pricing and then attempts to claim deductions for the expenses incurred during the “non-commercial” use. You are not allowed to claim tax deductions on your holiday property for periods of no use or non-commercial use. A holiday homeowner can only claim tax deductions for the periods when the property is available for rent or is rented on a commercial basis in the open market.

Other Mistakes to Avoid

Some of the incorrect deductions that you should watch out for in a holiday home or holiday rental include the following:-

  • If you host guests via AirBnB and other home rental services on your holiday rental, the income is treated as any other property rental income and must be reported to the ATO.
  • Make sure that you report the rental income and deductions as a rental income schedule of your tax returns and not as a business income.
  • The management and maintenance costs of the holiday property can be deducted against the property owner’s income for the tax year.
  • If you are doing AirBnB rental, ensure that you have correctly and proportionally apportioned income and expenses for the rented part of the property and not for the entire property. You are only allowed to claim expenses which are connected to the part of the holiday property that was rented. You can also do a part claim for some of the common areas of the property such as the kitchen and the lounge area.
  • Claim only the deductions that relate to the period during which the room was rented.
  • You should also be aware of the capital gains tax (CGT) liabilities when you are using a part or whole property. You may end up losing some of CGT exemptions relating to the part of the property that was rented out.

Need help navigating complex rules around owning a holiday home and filing tax deduction claims on holiday homes and rentals? Talk to an accountant Melbourne professional who can help you work out an approach that will be best suited for your needs.

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