Tax implications of renting out your holiday home
If you own a holiday home you might rent it out at times when you’re not using it yourself.
This article considers some of the tax issues you need to be aware of.
Remember, you should seek professional advice if you have any concerns or are unsure about your situation and what the tax implications are.
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Income and expenses
If your holiday home is rented out, the rental income you receive is taxable.
You can claim expenses for the property to the extent they’re incurred in earning that rental income.
Your expenses will have to be apportioned if:
- your property is genuinely available for rent for only part of the year;
- you used the property yourself for part of the year;
- only part of your property is used to earn rent; or
- you charge less than market rent to family or friends to use the property.
Expenses that relate solely to the renting of your property do not have to be apportioned as they are fully deductible. Such expenses include:
- real estate commissions;
- costs of advertising for tenants;
- the cost of phone calls you make to a tradesperson to fix damage caused by a tenant; and
- the cost of removing rubbish left by tenants.
On the other hand, no deduction can be claimed for expenses that relate solely to periods when the property isn’t genuinely available for rent, is used for a private purpose or relates to a part of the property that isn’t rented out.
For example, the cost of cleaning your holiday home after you, your family or friends have used the property for a holiday or a repair for damage you caused while staying there wouldn’t be deductible expenses because they relate to your private use.
Expenses may be deductible for periods when the property is not rented out, but only if the property is genuinely available for rent.
Is the property 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 or on restricted social media groups;
- the location, condition of the property, or accessibility of the property mean that it’s unlikely tenants will seek to rent it; or
- you place unreasonable or stringent conditions that restrict the likelihood of renting out the property, such as setting the rent above the going rate for comparable properties in the area.
Disclaimer: The information on this page is for general information purposes only and is not specific to any particular person or situation. There are many factors that may affect your particular circumstances. We advise that you contact Mathews Tax Lawyers before making any decisions.