With Illawarra's growing popularity, ATO spotlight on holiday homes grows

The Australian Taxation Office is paying close attention to holiday rental properties following Assistant Commissioner Kath Anderson's statement last year the ATO had identified a large number of mistakes with deductions for rental properties, particularly with regards to holiday homes.

With the Australian Taxation Office sharpening its focus on the holiday home rental market, Wollongong accommodation provider Emerald and Aqua said this comes at a time when the event and sports-based tourism promoted by Destination Wollongong such as The CrossFit Games, Bravo Challenge and Yours and Owls has led to increased tourism numbers to the Illawarra.

Greg Channer, managing director of Emerald and Aqua, said that over the past 18 months the demand for holiday homes in the Illawarra has increased and its not uncommon that we are fully booked during events.

"All our holiday homes were booked during Wings Over Illawarra and Cross Fit Games and he expects the trend to continue as the popularity of Illawarra as an alternative holiday destination grows," he said.

"When speaking with our guests one of the reasons being cited is that the Illawarra is only 60 minutes from Sydney CBD and there are not the lengthy 3 to 4 hours traffic jam’s faced when travelling to the Central Coast.

According to the ATO, one of the key concerns in regards to holiday home owners is when people who rent out their holiday homes for just a few weeks a year try to claim full-year deductions.

The popularity of the sharing economy and platforms like Airbnb empowering anyone with a spare room or couch to earn some extra income as a host has led to an increase in confusion of the regulatory environment with many hosts unsure of what the legal risks of self managing are and the ATO’s scrutiny highlights this.

Channer said Emerald and Aqua gets calls weekly from hosts who have been self managing and unsure of the legal risks they face.

"As licensed real estate agents Emerald & Aquais legally required to meet strict legislative and compliance requirements, our accounts are independently audited annually, we must comply with the Australian Consumer Standards and meet Commonwealth and State legislation governing Real Estate management," he said.

"We maintain high quality assurance of all record keeping. Each year at tax time we provide a report to each landlord detailing the income they have earned, the occupation rate and their own use of the property so that accurate reporting can be provided to their accountants to ensure they meet reporting standards.”

Bradley Beer of BMT, a quantity surveyors firm specialising in tax depreciation, suggests these compliance guidelines to assist holiday home owners in accurate recording of use:

• If you use your property personally throughout the year and then use it as an investment property for part of the year, you will need to prove to the Australian Taxation Office (ATO) that the property is an authentic investment.
• You should be able to claim deductions which include the interest expense of the mortgage for the times that your property was rented out. These will be apportioned between the time your property was rented out and the time it was occupied for personal use.
• Maintenance as an expense is deductible, though travel expenses to inspect your property or for general maintenance associated with your personal use of the property is not an income tax deduction.
• The great news is you may get higher depreciation allowances on holiday accommodation, because some short stay accommodation qualifies for 4 percent depreciation for 25 years compared to the standard 2.5 percent for 40 years. If your property is furnished your depreciation claim can be quite substantial as furniture depreciates quickly giving you greater claims earlier.