Recently, the ATO issued a list of four questions holiday-homeowners should be asking themselves.
How do you advertise your rental property?
If your property is advertised on a widely seen online site, that’s a good indication that the property is available for rent.
If your only form of marketing is a tatty card in your front door window, you might need to be concerned.
What location and condition is your rental property in?
If your property is in good repair, tenants will want to rent it.
If it’s a hovel, chances are tenants will give your property a wide berth, particularly if you are charging rent that’s on a par with much more desirable rentals in the same area.
Do you have reasonable conditions for renting the property and charge market rate?
If you set conditions that will deter a reasonable potential tenant — such as rent significantly above market rates or clauses such as "no children” — your property may not be regarded as genuinely available for rent.
Do you accept interested tenants, unless you have a good reason not to?
If you’re unreasonably fussy about who you rent to, the ATO might conclude that you don’t really want to rent to anybody and that your property isn’t actually available for rent.
The ATO keeps a close eye on claims for repairs to newly bought rental properties.
The costs to repair damage and defects existing at the time of purchase — such as leaky roofs or rotten window frames, or the costs of renovation cannot be claimed immediately.
These costs are deductible instead over a number of years or are added to the cost base of the property for CGT purposes.
Expect to see the ATO checking such claims and pushing back against claims which don’t stack up.
And ignorance is no defence; just because you didn’t know the property had defects when you bought it doesn’t change the ATO’s attitude to so-called "initial repairs”.
If the property is rented out to friends or family at a discounted rate, this will be regarded as a non-commercial rental.
The income will still be taxable but you will only be able to claim deductions up to the amount of rent you have received.
You won’t be able to make a loss; if you were relying on negative gearing, that isn’t a desirable outcome.
Don’t forget, the ATO has access to many sources of third-party data, including access to popular property rental listing sites, so it is relatively easy for them to establish whether a claim that a property was "available for rent” is correct.
The key tip is to ensure that you keep good records.
The golden rule is — if you can’t substantiate it, you can’t claim it, so it’s essential to keep invoices, receipts and bank statements for all property expenditure, as well as proof that your property was available for rent, such as rental listings.
Saturday, 6 April 2019