You generally must pay tax on any rental income you earn from a holiday home. You can deduct your rental expenses from your total rental income. Your deduction must relate to the income-earning use over the year.
There are different tax rules if your holiday home has mixed-use. Mixed-use is when, over the income year, it was:
- used privately
- used to earn income (or be available to earn income)
- unoccupied for 62 days or more.
You can deduct your rental expenses from your rental income. You cannot deduct expenses for the private use of your holiday home.
If you earn less than $4,000 of rental income a year, you do not need to include this income in your annual tax return. If it’s not included you cannot claim any rental expenses.
Private use of your property includes use by:
- you or your family, even if a member of your family pays you rent
- non-associated people if you receive rental income at less than 80% of market rates.
Income-earning use is when you earn rent at 80% or more of the market rate from a non-associated person.
If you stay in your holiday home to repair damage caused by tenants during ‘income-earning’ days, your stay is also counted as ‘income-earning’.
Companies who own holiday homes must pay income tax on rental income earned. If you’re a private holiday home owner, you do not need to pay income tax if you:
- make a loss from the income-earning use and gross income from its income-earning use is less than 2% of the holiday home’s value.
- earn less than $4,000 rental income in an income year.
If you don’t pay tax on your private holiday home you cannot deduct rental expenses.
Expenses and deductions
Rental expenses that can be deducted from rental income can be costs for:
- advertising for tenants
- repairing damage caused by tenants.
You cannot deduct expenses that are only for private use.
If you have expenses for both income-earning and private use, you need to apportion them.
Holiday home income-earning use and losses
If your gross income from income-earning use is less than 2% of the value of the holiday home, you can’t claim the loss in the current year.
You’ll have to carry forward the loss and offset it against income from your holiday home in a future tax year.