Investing in holiday homes

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In Western Australia, we are blessed to have so many great holiday spots within driving distance. Many people choose to purchase holiday homes, partly as an investment, but also for the freedom of knowing they don’t have to worry about booking a resort as they know they can go whenever they want.

Unfortunately, tax still applies to holiday homes.

If you aren’t renting the holiday home out at all then you don’t need to include it on your tax return until you sell it. When you sell it, you will need to calculate the capital gain (or loss) and calculate the CGT and include it in the tax return for the financial year which the contract to sell was formed.

If you are renting the holiday home out, then you will need to include the income from this on your tax return. You can claim expenses based on the extent to which they are used to generate rental income.

If you only rent the property out for half the year, you will need to apportion your expenses appropriately. Similarly, if only half of the house is available for rent, then you will need to apportion the expenses.

You can usually claim expenses if your property is available for rent, but not generating rental income if the property is properly advertised. Indications you may not be entitled do deductions when it’s ‘advertised’ but not rented out include;

  • Only advertising it at your workplaces/sporting clubs
  • Only advertising through word of mouth
  • Only advertising through social media groups

Also, the condition and location of your property may hinder your ability to claim expenses on it. If it is in a location where it is highly unlikely to be rented, you may not be able to claim all expenses that you thought you might have been entitled to.

Lastly, the property needs to be listed an equitable price to be considered ‘genuinely available’ for rent. If you list a property at $750/week when the market price is $400/week then it seems as if you are reserving it for personal use and have no intention of renting the property out.

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