Published at: 6/21/2016 3:29:21 PM
The Tax Office is taking a close look at holiday home deductions. We explain the danger areas.
There’s nothing quite as relaxing as taking a break in your very own vacation home. And there are few things more stressful than being in the tax man’s spotlight. Yet the two can go hand in hand for investors who don’t follow some strict guidelines.
Keep things above board
Owning a holiday home can be personally, and financially, rewarding especially if the property is made available for short term lettings when you’re not using the place.
The rental income turns a luxury asset into a source of extra cash, and just like a regular rental property, you may be able to benefit from the tax savings of negative gearing.
However the golden rule at tax time is to only claim expenses relating to the period when the property was rented out.
And be sure to keep everything above board. In other words, you need to genuinely make the place available to rent at market rates. Simply handing over the key to a few friends in return for ‘mates rate’ rent won’t cut it with the Tax Office.
As a guide, the tax man recently disallowed deductions claimed for a holiday home after discovering the property was rented to family and friends at a discounted rate. There was no genuine effort to let the property, and as a result, the property owner copped a penalty plus unexpected tax charges.
Expert advice is a must
It’s always smart practice to toe the tax man’s line. But if you’re investing in a holiday home speak with your tax adviser about the records you need to keep, and the expenses you can claim. That way you’ll have nothing to worry about if the tax man comes knocking.