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ATO increases focus on rental property deductions

The ATO will have an increased focus on rental property deductions this Tax Time.

It will be paying closer attention to excessive deductions claimed for holiday homes in 2015, and will also be actively educating rental property owners about what they can and cannot claim.

For example, the ATO will be writing to rental property owners in popular holiday locations, reminding them to only claim the deductions they are entitled to, for the periods the property is rented out or is genuinely available for rent.



The ATO recently amended a taxpayer’s return to disallow deductions claimed for a holiday home after discovering that:

  • the taxpayer rented the home to family and friends during the year at less than market rate;
  • except for a brochure which was only available at the taxpayers’ business premises, there were no realistic efforts to let the property;
  • the nightly rent advertised was much higher than that of surrounding properties; and
  • the pattern of income did not match the advertised rate, or the requirement for a five-night minimum stay.


The ATO decided the property was mainly used by the taxpayer, and deductions were limited to the amount earned from family and friends.


Claiming deductions on holiday homes

The principles that apply to a rental property also apply to a holiday home if it is rented out.

If a taxpayer rents out their holiday home, they can claim expenses for the property based on the proportion of the income year it was rented out or was genuinely available for rent.

They must apportion their expenses if the property is used:

  • for private purposes for part of the year – such as when they use it themselves, or allow their family, relatives or friends to use it free of charge; and
  • by family or friends for part of the year and they are charged less than market rent.


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


Tax Tip:  Keeping records for CGT purposes
If you own a holiday home, you need to keep records of your expenses.

If you make a capital gain when you sell the property, the proportion of expenses (interest, insurance, maintenance costs and council rates) you could not claim a deduction for are taken into account in reducing the amount of your capital gain.