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  • Holiday homes

    If you own a holiday home, you can only claim tax deductions for expenses to the extent the home is rented out or genuinely available for rent.

    Even if you don't rent out your holiday home, there are capital gains tax implications when you sell it.

    On this page:

    See also:

    Holiday home – not rented out

    If you own a holiday home and don't rent out the property, you don't include anything in your tax return until you sell it.

    When you sell the property, you will need to calculate your capital gain or loss.

    Keep all records from the time you purchase the property until the time you sell it to be able to work out the capital gain or loss when you sell.

    See also:

    Holiday home – rented out

    If your holiday home is rented out, you need to include the rental income you receive as income in your tax return.

    You can claim expenses for the property based on the extent that they are incurred for the purpose of producing rental income.

    You will need to apportion your expenses if:

    • your property is genuinely available for rent for only part of the year
    • your property is used for private purposes for part of the year
    • only part of your property is used to earn rent
    • you charge less than market rent to family or friends to use the property.

    Holiday home – not genuinely available for rent

    Expenses may be deductible for periods when the property is not rented out, if the property is genuinely available for rent.

    Factors that may indicate a property isn't genuinely available for rent include:

    • it's advertised in ways that limit its exposure to potential tenants – for example, the property is only advertised      
      • at your workplace
      • by word of mouth
      • on restricted social media groups
      • outside annual holiday periods when the likelihood of it being rented out is very low
    • the location, condition of the property, or accessibility of the property mean that it's unlikely tenants will seek to rent it
    • you place unreasonable or stringent conditions on renting out the property that restrict the likelihood of the property being rented out, such as      
      • setting the rent above the rate of comparable properties in the area
      • placing a combination of restrictions on renting out the property – for example, requiring prospective tenants to provide references for short holiday stays and having conditions like 'no children' and 'no pets'
    • you refuse to rent out the property to interested people without adequate reasons.

    These factors generally indicate the owner doesn't have a genuine intention to earn rental income from the property and may have other purposes, such as using it or reserving it for private use.

    Example 1 – property advertised for rent but rent is excessive

    Viraji owns a holiday home and has a real estate agent who advertises the property for rent. The market rent of comparable properties in the same location as Viraji's holiday home is $1,000 a week. Viraji arranges for her property to be advertised at $1,500 a week or $300 a night.

    Viraji's property is not genuinely available for rent. Her intention is to reserve it for her own use. At no time during the year does anyone rent the property. Viraji can't claim any deductions for the property because it is not genuinely available for rent.

    Viraji needs to keep records of her expenses. If she makes a capital gain when she sells the property, her property expenses (such as property insurance, interest on the funds borrowed to purchase the property, repair costs, maintenance costs and council rates) are taken into account in working out her capital gain.

    End of example

     

    Example 2 – unreasonable rental conditions placed on property

    Josh and Maria are retired and own a holiday home where they stay periodically. They have a real estate agent advertise the property for short-term holiday rental. Josh and Maria instruct the agent that they must personally approve tenants before they are permitted to stay. Prospective tenants must provide references and have no children or pets.

    At no time during the year do Josh and Maria agree to rent out the property even though they receive a number of inquiries. The conditions placed on the renting of the property and Josh and Maria's refusal to rent it to prospective tenants indicate their intention isn't to earn rental income from the property, but to reserve it for their own use. Josh and Maria can't claim any deductions for the property.

    Josh and Maria need to keep records of their expenses. If they make a capital gain when they sell the property, their property expenses (such as property insurance, interest on the funds borrowed to purchase the property, repair costs, maintenance costs and council rates) are taken into account in working out their capital gain.

    End of example

     

    Example 3 – private use by owners during key periods with little or no demand for property at other times

    Daniel and Kate have two school-aged children and own a holiday house near the beach. The house is located in an area that is popular with summer holiday-makers but is only accessible by four-wheel drive vehicles.

    During the year, Daniel and Kate advertise the property for rent through a local real estate agent. However, Daniel and Kate advise the agent that during each school holiday period, the property isn't to be rented out. They want to reserve the property for their own use.

    While there is demand for the property during the summer holiday period, there is no demand outside this period because of the small number of holiday-makers, the location and the limited access to the property. The house isn't rented out at all during the income year.

    In Daniel and Kate’s circumstances, they can't claim any deductions for the property. They don't have a genuine intention to earn rental income from the property. It is essentially for private use.

    If in the circumstances Daniel and Kate happen to rent out the property for a period, they can claim a deduction for a proportion of their expenses based on the period the property is actually rented out. For example, if the house is rented out for two weeks, they can claim a deduction for their expenses for two weeks out of the 52 weeks in the year.

    Daniel and Kate need to keep records of their expenses. If they make a capital gain when they sell the property, the proportion of expenses (interest, insurance, maintenance costs and council rates) they could not claim as a rental deduction because it relates to their own occupation of the property, are taken into account in working out their capital gain.

    End of example

    Holiday home – part year rental

    If you rent out your holiday home and also use it for private purposes, you must apportion your expenses. You can't claim deductions for the proportion of expenses that relate to your private use or if it was not genuinely available for rent, such as when used or reserved for yourself, friends or family.

    If your holiday home is rented out to family, relatives or friends below market rates, your deductions for that period are limited to the amount of rent received.

    Example 1 – investment property made genuinely available for rent, with minor private use

    Gail and Craig purchase a holiday home in 2016 which they rent out at the market rate to holiday makers. They have a property manager at a local real estate agent advertise it for rent during the year and communicate regularly to ensure the property is being managed. Gail and Craig consider renting out the property on a long-term lease; however determine they can derive more profit from short-term rental.

    The property is available for rent during all holiday periods, including weekends, school holidays, Easter and Christmas. Gail and Craig use the property themselves for four weeks during the year, in 'off-peak' periods when they are unlikely to find tenants.

    During the year, Gail and Craig’s expenses for the property are $34,800. This includes interest on the funds borrowed to purchase the holiday home, property insurance, the agent's commission, maintenance costs, council rates, the decline in value of depreciating assets and deductions for capital works.

    Gail and Craig receive $25,650 from renting out the property during the year. They can claim deductions for their expenses based on the proportion of the income year the property is rented out or is genuinely available for rent. They can't claim any deductions for the four weeks they use the property themselves.

    Gail and Craig’s rental income and deductions for the year are as follows:

    • rent received = $25,650
    • rental expenses ((48 ÷ 52) × $34,800) = $32,123
    • rental loss is $32,123 − $25,650 = $6,473.

    As they are joint owners, Gail and Craig claim a rental loss of $3,237 each in their tax returns.

    Gail and Craig need to keep records of their expenses. If they make a capital gain when they sell the property, the expenses (interest, insurance, maintenance costs and council rates) they couldn't claim as a rental deduction relating to their own occupation of the property are taken into account in working out their capital gain.

    End of example

     

    Example 2 – rented out for part of the year at market rates

    Akshay and Jesminda have a holiday home. They rent it out between 20 December and 17 January because they can make a significant amount of money, This helps offset the costs of owning the property for the year. They reserve the property for their own use for the rest of the peak holiday period, and a number of other weekends during the year.

    Akshay and Jesminda receive $3,000 a week from renting the property out during the four weeks over the Christmas–New Year period. The property is not rented out any other time during the year.

    Akshay and Jesminda's expenses for the holiday home for the year are $31,200. This includes interest on the funds borrowed to purchase the property, property insurance, the agent's commission, repair costs, maintenance costs and council rates.

    Akshay and Jesminda can only claim deductions for the proportion of the year they rent out the property (four weeks). They declare net rental income in their tax returns as follows:

    • rent received = $12,000
    • rental deductions (4 ÷ 52 weeks) × $31,200 = $2,400
    • net rental income $12,000 − $2,400 = $9,600.

    As they are joint owners, Akshay and Jesminda declare net rental income of $4,800 each in their tax returns.

    Akshay and Jesminda need to keep records of their expenses. If they make a capital gain when they sell the property, the expenses (interest, insurance, maintenance costs and council rates) they can't claim as a rental deduction relating to their own occupation of the property are taken into account in working out their capital gain.

    End of example

     

    Example 3 – rented out for part of the year at market rates

    Marie purchases a property in a seaside holiday town so that her family can holiday there over the December to January school holidays and Easter period each year. For the remainder of the year, Marie rents the property out via an accommodation sharing platform so that she can claim some of the costs of holding the property against the rental income.

    On the platform, Marie ‘blocks out’ the school holiday and Easter periods for her family’s use. The town's busiest times for tourists are during the school holidays; particularly the December/January period when the weather is warmest.

    Marie uses the property personally for 20 days per year over December to January holiday period and a total of another 20 days during school holidays and Easter. Marie rents out the property to other holiday-makers for 25 days per year at times outside school holidays and Easter.

    Marie receives $3,000 from renting her property and incurs expenses of $60,000 in relation to the property.

    Marie can't claim any deductions for:

    • the time she uses the property herself
    • the period the property is not in use.

    Marie can claim deductions for the period the property is actually rented (25 days). Marie would calculate her deductions as:

    • rent received = $3,000
    • rental expenses (25 ÷ 365) × $60,000 = 4,109
    • net rental loss = $3,000 − $4,109 = $1,109.

    Marie can claim a net rental loss of $1,109 in her income tax return.

    End of example

     

    Example 4 – private use by owner and rented to relatives/friends at a discounted rate

    Kelly and Dean purchase a holiday home in 2016. During holiday periods, the market rent is $840 a week. They have a real estate agent advertise it for rent during the year and communicate regularly to ensure the property is being managed.

    Kelly and Dean arrange with the agent for their friend Kimarny to stay at the property for three weeks at a nominal rent of $200 a week. They also use the property themselves for four weeks during the year.

    During the year, Kelly and Dean's expenses for the property are $30,000. This includes interest on the funds borrowed to purchase the holiday home, property insurance, the agent's commission, maintenance costs, council rates, the decline in value of depreciating assets and deductions for capital works.

    Kelly and Dean receive $600 from renting out the property to Kimarny during the year. They can't claim any deductions for the four weeks they use the property themselves or the period that the property is not rented out.

    Kelly and Dean can claim deductions for their expenses based on the period of the income year it is rented out to Kimarny. Because the rent they receive from Kimarny is less than market rate and their expenses are more than the rent received during that period, they can't claim all of the expenses.

    Kelly and Dean can only claim deductions equal to the amount of the rent during this period – that is, $600.

    End of example

     

    Example 5 – rented to relatives/friends at a discounted rate where expenses are less than the rent received for the period

    Shahani and Marvin buy a holiday home in 2016. They advertise it for rent at a market rate of up to $1,040 a week. They have a real estate agent advertise it for rent during the year and communicate regularly to ensure the property is being managed.

    Shahani and Marvin arrange with the agent for their friends, Katrina and Greg, to stay at the property for one week at a nominal rent of $600, and for a cousin, Gerard, to stay for another week for $600. They also use the property themselves for four weeks during the year.

    During the year, Shahani and Marvin’s expenses for the property are $30,940. This includes interest on the funds borrowed to purchase the holiday home, property insurance, the agent's commission, maintenance costs, council rates, the decline in value of depreciating assets and capital works deductions.

    Shahani and Marvin receive $46,960 from renting out the property during the year. This includes the $1,200 they receive from Katrina, Greg and Gerard.

    Shahani and Marvin can't claim a deduction for the four weeks they use the property themselves.

    Shahani and Marvin can claim a deduction for their expenses based on the proportion of the income year the property is rented out or is genuinely available for rent at market rates:

    • (46÷52 weeks) × $30,940 = $27,370.

    Shahani and Marvin’s deductions for the two weeks Katrina, Greg and Gerard rented their property are not affected because the rent received ($1,200) is more than their expenses for that period of $1,190 (2÷52 × $30,940).

    Shahani and Marvin's rental income and deductions for the year are as follows:

    • rent received = $46,960
    • rental expenses $27,370 + $1,190 = $28,560
    • net rental income $46,960 − $28,560 = $18,400.

    As they are joint owners, Shahani and Marvin declare net rental income of $9,200 each in their tax returns.

    Shahani and Marvin need to keep records of their expenses. If they make a capital gain when they sell the property, the expenses (interest, insurance, maintenance costs and council rates) they can't claim as a rental deduction relating to their own occupation of the property are taken into account in working out their capital gain.

    End of example
    Last modified: 07 Aug 2019QC 45076