Your Holiday Home & Tax
Owning a holiday home in the country or by a beach can be a desirable goal for many Australian families, particularly for those of us that live and work close to the city. What you do with your holiday home can cause different taxation implications.
Renting
You might decide you want to rent out the property while you aren’t using it. That means you’ll be earning income that will need to be declared on your tax return. However, you will also be entitled to claim deductions such as rates, interest on loans, and repairs, along with depreciation and capital works, if applicable. Just keep in mind you will need to apportion these expenses for private use based on the weeks you have used your holiday home.
Capital Gains (CGT)
Since your holiday home won’t be your main residence, a capital gains tax exemption will not be available. That means you’ll be paying tax at your marginal rate on any gain you make when selling the property. Depending on who owns the holiday home and if it’s been owned for more than 12 months, a 50% CGT discount may be available. Additionally, certain costs that have not been tax-deductible (for example unclaimed expenses) such as interest, rates, land tax incurred while holding the property can be used to reduce your CGT bill.
Goods and services tax (GST)
Holiday homes that are residential won’t have GST on rent if you are registered or required to be registered for GST. However, if your holiday home is a commercial residential premises such as a hotel, motel, serviced apartments etc. the rent may be subject to GST.
CGT concessions
Some business owners might find that they want to sell their business and want access to the small business CGT concessions. If the business has turnover greater than $2 million, you need to look at the $6 million net asset test. Assets solely used for personal or private enjoyment (such as a holiday home) are excluded from this test. This may present planning opportunities which should be discussed with your accountant.
If you feel you may benefit from further advice about holiday homes, please don’t hesitate to contact our office for advice about your individual circumstances.