Investing in property can extend to rental holiday homes which sounds almost too good to be true. With careful selection and consideration, a family holiday home can be a viable financial investment. Negative gearing that applies to residential and commercial investment also applies to holiday houses and short-term rentals.
A link to the Australian Tax Office site, which further explains matters, is given below.
Tax deductions on your Holiday Home
A holiday home can be negatively geared for the periods that you make it available for holiday rental. To qualify, it must be available for holiday periods and selection of peak periods e.g. Christmas and long weekends. As the owner, you can stay at your holiday rental for nothing, but any time you spend there is not tax deductible.
Peak holiday times are November to February, school holidays except winter (April and September) and long weekends in March and September. Rental charges in peak periods are typically three times the off-peak rates. This equates to a greater proportion of deductions being available during the peak periods.
Can I use the property at peak times?
Blocking out periods in peak time to ensure holiday time for yourself is possible, but this time is deducted from the property’s annual income. This cannot be bypassed by renting to family or friends for free or reduced rent. Only money and expenses spent on the property when it is genuinely available for commercial rent can be claimed.
Should I use an Agent?
Using an agent ensures records are kept to the tax department’s satisfaction. It also shows the tax department you are offering a genuine rental property. The ability to negative-gear relies on evidence that the property is actually available to be rented.
If the property is managed by an agent and happens to be empty, the owner can take this opportunity to spend time in the property. This time may include carrying out repairs, maintenance or upgrades. Of course, that means taking impromptu holidays when the property happens to be vacant, and/or planning breaks in the off-season. The critical aspect here is that you have not obstructed the use of the property as a rental by blocking out time for yourself.
Capital Gains Tax
Don’t forget to consider how CGT can impact upon your tax in the years to come if you’re planning to sell your weekender. Any capital gain you make will be included in your taxable income for that year. Read the Business for Doctors guide to Capital Gains Tax here.
Weigh the pros and cons of negatively geared holiday houses carefully before making an investment. Essentially, choosing a property that is low maintenance, easy to lease out and suitable for your family needs would be key considerations. Seeking professional advice from your tax advisor and financial planner is a must.
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