If you have been told that you need to diversify your investment strategy, you may have decided to purchase a holiday home and put it on the rental market for additional income. This can be a great way to make some money and boost your portfolio, so long as you approach it correctly and specifically, are careful when accounting for tax. Should you be worried that the ATO may look at this critically, in light of recent developments?
Key Considerations
Some people believe that the tax authorities are "cracking down" on people who have a holiday home that they make available for rent during certain periods of the year. In order to ensure that you comply, you must be very clear about this property and just how much of it is actually available for rental. In short, you have to make a valid effort to rent out the property, if you want to claim any associated expenses on your annual return.
Proactive Advertising
Remember, you're only able to claim deductions for the weeks when the property was on the market and was available to other people. Be careful here, as it is best if you employ some proactive efforts to rent out the home, such as the placement of ads on a holiday website. If the ATO does not think that you are serious about it, your deductions might not qualify.
Good Condition
You also have to ensure that the property is in a good enough condition to be valuable on the rental market. For example, is it in an enticing location, relatively easy to get to and is it kept in great repair?
Real Availability
In the past, some people may have made a token effort to advertise their home, but imposed some unreasonable conditions so that they didn't actually have to accept any renters. If the ATO can see that you are putting an unreasonable premium on your rental rates in this fashion, then you will likely fail the "availability" test.
Revenue Test
It is certainly okay for you to allow family or friends to stay at your property at no charge when you're not there, but you cannot include these particular weeks when calculating deductions for your return. If you do charge a nominal rent in the hope of bypassing this rule, the ATO will clamp down on it.
Doing It Right
To make sure that you are getting the most out of your investment and keeping the ATO happy, make sure that you talk with an accounting professional.
Share13 November 2017
Hi, everyone. Nancy here. I am currently studying for my degree in mathematics. As part of the “maths in the workplace” component of my degree, I am doing an internship with an auditing firm. Of course, getting to apply maths in a practical setting has been an absolute joy, but there have been a number of frustrations too. It has been a real eye-opener to see how many businesses have a haphazard approach to accounting and book-keeping. One of the jobs the auditing firm undertakes is to recommend improved accounting practices. A number of businesses which have hired professional accountants since the last audit have definitely thrived! I hope this blog captures the beauty of applying mathematical principles to business and using tried and true accounting methods. I trust my entries add up properly to give you an equal share of information and inspiration. Thank you.