The Australian Taxation Office is setting their sights on the large number of mistakes, errors and false claims made by rental property owners who use their own property for personal holidays.

“Australians enjoy the school holidays, they should be aware that the ATO is focusing on taxpayers who claim deductions for holiday homes that are not actually available for rent or only available to friends and family,” Assistant Commissioner Kath Anderson said.

“While private use by family and friends of a holiday home is entirely legitimate, it does reduce your ability to earn income from the property. This in turn impacts the deductions you can claim.

“You can only claim deductions for your holiday home if your property is genuinely available for rent. You cannot claim for times when you were using it for your own personal holidays or letting friends and family stay rent-free. It’s not ok to expect everyone else to pay for your holiday.

“Holiday home owners also need to remember that if their property is rented to friends and family at mates rates, they can only claim deductions for expenses up to the amount of the income received.”

Besides holiday rentals, the ATO is also focused on other times when a property is not rented or genuinely available for rent. Anderson said some taxpayers claim their property is available for rent, but when the ATO investigates, it is clear they have little intention of renting it out.

“We see things like unreasonable conditions placed on prospective renters, rental rates set above market rates, or failing to advertise a holiday home in a way that targets people who would be interested in it,” Ms Anderson said.

“Incorrect rental property claims will not go unnoticed. Whether it is a genuine mistake or a deliberate attempt to over-claim, new technology, data matching and other systems allow the ATO to identify unusual claims.

“Where something raises a red flag, it will be investigated. Property owners whose claims are disproportionate to the income received can expect scrutiny from the ATO.”

Anderson said all rental property owners should double-check their claims before lodging their tax return, even if submitting through a tax agent.

“Make sure that you declare all rental income and only claim deductions for periods that the property is rented or was genuinely available for rent at market rates,” Anderson said.

“Be sure to keep accurate records of the income you receive from your rental property, expenses you incur, and evidence of the property being rented or genuinely available for rent at market rates. You should also records of who stayed at the holiday home and when, including the time you and your family stay at the property.”

Is your property genuinely available to rent? 

Four rules to remember:

Advertise the property

Advertise the property to a wide audience. Advertising through a real-estate agent or an online site is not always enough evidence to demonstrate that a property is genuinely available for rent, and nor is only advertising locally or by word of mouth.

Ensure the property is in good condition

The property must be in a location and condition that will mean tenants will want to rent it. If your property is run-down or in a remote location, it may not be realistic to expect that it will appeal to anyone.

Charge market rates

Charging rent above market rates in order to deter tenants from applying could mean your property is considered to not be genuinely available for rent. Likewise, if you, your family or your friends stay for free, your property will not meet the criteria during that time period. If the property is being tenanted at a discount (mates rates) then the allowable deductions are limited to the amount of rent charged, not market rates.

Accept tenants

If you refuse to rent out your property to interested potential tenants without a good reason, this indicates that you may not have a genuine intention to make income from the property and could be reserving it for private use. In this case, your property wouldn’t meet the criteria for being genuinely available for rent.

Visit the ATO website to find out more about tax for holiday home rentals.

For more general information on rental properties, click here.

Deductions are available if the property is genuinely available for rent. However, different rules apply if you’re renting out your private residence. 

Click here for more information about the tax implications of renting your private residence.

Read more about holiday homes:

Will long term Airbnb replace traditional renting?

ATO warns owners of holiday homes about 'mates rates'

Tips to make your holiday rental stand out from the crowd