The ATO has holiday homeowners in its sights

.

The regulator has issued a draft taxation ruling outlining that losses and outgoings on properties used for personal and rental income purposes will need to be apportioned on a “fair and reasonable” basis to work out how a deduction can be claimed.

Where the ATO deems that a property is mostly used as a holiday home rather than for legitimate rental activities, it will classify the property as a “leisure facility

This means that expenses such as mortgage interest, council rates, land tax and maintenance cannot be claimed, and the only allowable deductions will be for cleaning expenses, advertising and agent platform fees.

“The ATO has been increasingly concerned about the overclaiming of rental expenses by people who have properties, in particular, holiday homes,” says CPA Australia’s Tax Technical Adviser, Bill Leung.

Leung says the ATO is scrutinising activities where properties listed for rent are deliberately blocked out by the owners during peak periods of the year, so they or their families can use them for their own holidays.

“What the ATO is saying is that if you basically have a mixed bag purpose and you’ve got that personal usage, and the property is not really mainly used for rental purpose, it is going to apply the new ruling to you.”

It is important to understand how the rules operate to ensure you are not targeted by the ATO. Contact us if you have any concerns over how this draft ruling will affect you.