The dangers for individuals who use an online accommodation platform

If a holiday home is not actually rented to tenants and is not being used for private purposes (e.g., occupied by the owner), deductions can generally only be claimed in respect of the property (e.g., for holding costs) where it is genuinely available for rent.

The ATO has previously identified that some individuals may be using online (holiday) accommodation platforms as a way of disguising their property as being available for rent. This can occur where, for example, a taxpayer’s holiday home is advertised for rent through an online accommodation platform (e.g. Airbnb and Stayz), but the taxpayer does not respond to enquiries about the short-term hire or use of the property from prospective tenants.

In these circumstances, the ATO is likely to argue that the relevant property is not genuinely available for rent while it is being advertised in this way, resulting in deductions for property-related expenses (e.g., holding costs) generally not be available during these period(s).

TAX WARNING – Other factors that may indicate that a property is not genuinely available for rent.

Based on the latest ATO and case law guidelines (e.g., the ATO fact sheet: Holiday homes (QC 45076)), the following factors may indicate that a holiday home is not genuinely available for rent:

Location, condition and accessibility of the property

The location, condition and accessibility of the property may be such that tenants are unlikely to seek to rent it.

Placing unreasonable or stringent conditions on renting the property

A taxpayer places unreasonable or stringent conditions on renting out the property, which restricts the likelihood of the property being rented out. According to the ATO, this could include a taxpayer:

  • setting the rent above the rate for comparable properties in the area; and/or
  • placing a combination of restrictions on renting the property (e.g. requiring applicants to provide references for short stays and having conditions like ‘no children’ and ‘no pets’).

 
Refusing to rent out the property to interested people without adequate reasons

A taxpayer refuses to rent out the property without a reasonable explanation and/or refuses to follow up on enquiries regarding the property’s short-term hire (or rental).

The apportionment trap for holiday homes that are used for private purposes during ‘peak periods’.

Situations will arise where a holiday home is used for private purposes (e.g. by the owners and their family) during peak holiday periods (i.e. during periods that would otherwise generate the highest amount of rent, such as during the December/January school holidays and Easter).

In these situations, many holiday homeowners may seek to:

  • claim deductions for property-related expenses (e.g. holding costs) and depreciation that relate to the off-peak periods during the year that their holiday home is listed for rent on the basis that their property is genuinely available for rent; and
  • apportion these expenses on a ‘time basis’ (e.g. deductions are claimed for the number of days that the relevant property was listed for rental during off-peak times during the year).

 
In these circumstances, the ATO is likely to question a taxpayer’s purpose in acquiring and/or holding a holiday home, including whether the taxpayer has a dual purpose. As a result, the ATO may seek to apply a different apportionment method and/or reduce a taxpayer’s deductions in any of the following ways:

Limiting deductions to rental income

The ATO may only allow property-related deductions for the year to be claimed up to the amount of any rental income derived from the property.

Using an alternative method to ‘time basis’ of apportionment

If deductions are available for property-related expenses (e.g., holding costs) incurred during off-peak period(s) that the property was listed for rent, the ATO may argue that a ‘time basis’ apportionment (i.e., based on the number of days a property is genuinely available for rent) is not appropriate.

Instead, the ATO could argue that a more appropriate method would be to calculate allowable deductions based on, for example, the amount of rent received during the off-peak periods the property was listed for rent, as a proportion of the total rent that could have been received during the peak periods the property was used for private purposes.

No deductions during off-peak periods that the property was listed for rent

The ATO may entirely deny property-related deductions (e.g. holding cost deductions) that relate to off- peak periods during which the property was advertised for rent in the above circumstances, on the basis that the property is not genuinely available for rent during these periods.

In this case, the ATO may only allow property-related deductions that relate to any periods in an income year during which the property was actually rented to tenants.

If you have any questions regarding the above, contact your accountant at Lockwood Partners.