Private ruling: Rental property deductions
Date of advice: 7 March 2016
Published: April 2016
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you entitled to full rental property deductions in relation to your holiday rental? | A1: No. | Q2: Are you entitled to a portion of the rental property deductions in relation to your holiday rental from when you listed with an agent? | A2: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision: Summary: Taxation Ruling IT 2167 Income Tax: rental properties - non-economic rental, holiday home, share of residence, etc. cases, family trust cases provides the Commissioner's view on the tax consequences of non-traditional rental arrangements such as holiday homes. It provides that minimal amounts received from friends and relatives are not considered to be assessable income as they are private and domestic in nature. While on the other hand the rent received from the commercial letting of the properties, at a commercial rental, is clearly assessable income. The facts of each individual case will determine to what extent losses and outgoings incurred in connection with any such property will be deductible under section 8-1 of the ITAA 1997. In Case No. P116 , 82 ATC 590: Case No. 49, 26 CTBR (NS) 372 a holiday home was let for 16 days during the year of income, occupied by the owners for 107 days and vacant for the balance of the year. The Taxation Board of Review apportioned the losses and outgoings attributable to the property on a time basis and allowed a deduction only for the proportion the property was let out, that is 4.4%. Paragraph 25 of IT 2167 provides that in making the above apportionment of expenses, time where the property was not let out but made available for rent will only be taken into account where it is established that active and bona fide efforts to let the property at a commercial rental were made during the relevant period. In your situation, you purchased a property with the intention of renting it as a holiday home. You have stated that the property was available for rent from a date, however you had friends and family stay in the property, and then spent more than six weeks in the property yourself. You engaged a holiday rental property manager several months later. You have also used the property for private purposes after the agent was appointed. It is not considered that you made bona fide efforts to let the property until you signed with the real estate agent. The property was not commercially available for rent until this date. While the property was then only let for a relatively short number of days, it is accepted that you have made active and bona fide efforts to let the property from this time. Consequently, you are entitled to a deduction for a portion of the expenses you incurred from when you signed with the agent. You are not entitled to claim any expenses incurred prior to this date. When calculating the deduction, you must take into account the private use of the property.

Relevant facts: You purchased an investment property. | You had friends stayed in the property to test out the house for the holiday rental market. You charged them the commercial rate for the property. | You then resided in the property to perform maintenance to bring it up to standard for the target market. | You listed the property exclusively with a holiday rental agent. They advertised the property through various channels. | You had no involvement in the decision making in relation to bookings or management of the property from this date. | The property was in good condition and available to lease through the year. There were no restrictions on renting out the property, such as no children or pets.