Depreciation for vacation rental property

Vacation rental property tax depreciation

Rule number one to successfully claiming your holiday home as a tax deduction is this

…ensure your residence is genuinely available for rent

Recent changes to ATO legislation around claiming deductions for vacation homes is catching out a lot of investors

From July 1, 2017 the ATO made significant cutbacks to what they’d accept as genuine tax deductions for holiday homes.
This has caught off guard a lot of property owners. Resulting in landlords previously doing the right thing – now getting audited.

Follow my complete guide to claiming deductions on vacation homes


What does Genuinely Available for Rent mean?

In tax depreciation terms, genuinely available for rent is successful application of a combination of requirements the ATO has laid out for property owners.

In short, you must make your property easily accessible and available to rent at a competitive market rate and at times of the year when guests are most likely going to want to rent the property for short term accommodation purposes.

How to ensure your property is genuinely available for rent

I’ve found that the key to satisfying the ATO’s requirements for ‘genuinely available for rent’ is to ensure you are doing the following:

  • 1. List your property for rent on multiple platforms. Even if you only use the free ones like Gumtree and Marketplace as the secondary and tertiary listings. Make sure you have a few options going
  • 2. Set an appropriate rental price. I’ve seen many clients try to sneak around the rules (and getting caught) by asking way too much in rent and therefore never getting any bookings. Meaning: they can use the property for personal use whenever they want. But not anymore.
  • 3. Don’t choose Peak Season for personal use of your holiday home. You can get away with this a few times, but do it too often and the ATO may say your property is not genuinely available for rent and therefore no tax deductions and are allowed.

Deductions you can’t claim on your vacation home

no longer can you claim your travel expenses to and from your investment property when carrying out an inspection of the property.

This means you can’t claim;

  • Fuel
  • Flights
  • Train tickets
  • Rental vehicles
  • Accommodation and so on

Nor can you claim and tax depreciation deductions for the times your property is not genuinely available for rent.

What deductions can holiday rental owners claim?

Deduction entitlements for owners of vacation homes falls into three categories;

Capital Works Items

This is the category where structural and permanent improvements are categorised for tax depreciation.
Some examples I typically see in a vacation home, especially on the Gold Coast and Sunshine Coast, are swimming pools, outdoor entertaining areas and granny flats.

Plant and Equipment items

Here, all your appliances, motors, pumps, and temporary items such as light shades and ceiling fans are categorised for tax deductions.

Maintenance and overheads

General maintenance, like lawn mowing, tap repairs and typical overheads like agent letting fees are not included in a depreciation report. But they are still tax deductible- providing your property meets the “genuinely available for rent” definition.

Is your family holiday home eligible for tax deductions?

Claiming deductions for your family holiday home is allowed under current ATO guidelines. But you must follow the rules.

From my experience, it’s best to keep good records of the times your holiday home is used for personal use, and the times it’s used by paying guests.

By doing so, your quantity surveyor and accountant can accurately calculate the tax deductions you’re entitled to.

Splitting deductions between multiple owners

holiday homes with multiple owners need to follow the ATO guidelines on claiming deductions.
This means; property owners with a equal shares in ownership must claim the equivalent percentage of deductions in their tax returns.
For example: A husband and wife own a vacation home on Stradbroke island in Brisbane’s Moreton Bay. They purchased the property in joint names.
The husband earns $250,000 while his wife works part time and makes just $35,000

In the eyes of the ATO, they must split the income generated by the property, all overheads and any tax depreciation deductions 50/50.

I’ve seen many clients in this very situation try to skew the deductions in favour of the highest money earner, in hopes to lower their taxable income.
But the ATO doesn’t see it that way – and you could get yourself into some trouble with the taxman.

And no one wants to be probed by the taxman.

Best way to divide holiday rental tax deductions between rental and private use

Claiming tax deductions for vacation homes (ie holiday homes) only applies to the time periods where the property is genuinely available for rent/lease.

This means: you can’t claim deductions for a vacation home if you keep the property vacant or only use the property for private use.

Australian residents using a holiday home for both private use and income production are entitled to tax deductions.
But to get the best tax refunds possible you must engage the services of a qualified quantity surveyor.

At WRCQS we have several highly trained and experienced quantity surveyors on staff.
We have;

To get a quote – and a free eyeball estimate of deductions you may be entitled to – simply get in touch with us and we will help you out.

To see some real-worl results, a small sample of our cleints have been acheiving, check out our client porfolio of case studies.

This article was written by business founder and second generation Quantity Surveyor, William Callaghan A.A.I.Q.S.

First published June 2023