Landlords can only claim expenses of a revenue nature (e.g. interest on the mortgage or repairs to the property) on rental properties that are used to produce assessable income. A short term rental property will be used to produce assessable income if the property is either tenanted (i.e. actually rented out) or active bona fide efforts are made to let the property.
Usually there is an apportionment of expenses incurred when dealing with holiday homes available for short term rental (i.e. apportion expenses in relation to the number of days that the property is actually let and the period the holiday home was available for commercial rental as opposed to the number of days the house is being used privately as a holiday home).
Determining whether bona fide efforts have been made to let the property can be a complicated task depending on the specific facts and circumstances of any situation. For example, mere word of mouth advertising or only advertising the rental property through one website may not necessarily constitute a bona fide attempt to rent out the property. The ATO also takes into consideration items such as booking restrictions or blocked out periods, price incentives and free offerings (e.g. Wi-Fi).
Broadly, a property will be considered genuinely available for rent if the landlord can prove that through their marketing of the property, they have made active and continued efforts to attract tenants. In today’s knowledge and sharing economy, determining what will constitute active and continued efforts to attract tenants, may lead to interesting interpretations.
Nexia Australia are currently involved with a case where our client rented out a holiday home through engaging a real estate agent. Even though the real estate agent advertised the property on their website, took walk ins and telephone bookings and emailed details of the property to subscribers of their website, there is a current ATO interpretation that the property is not genuinely available for rent because the marketing strategy is allegedly not specifically aimed at letting out that particular property, but aimed at marketing all properties on the real estate agent’s website.
The ATO has also argued that the real estate agent did not market the property widely to the general public by using the internet and that the internet was a passive form of advertising. These arguments by the ATO are bereft of commercial reality. Is the ATO unaware that revenue previously generated by newspaper advertising is now almost non-existent due to advertising on the internet?
Nexia Australia will take this matter further and will update you on any new developments.
Anyone providing ride-sourcing services should be aware that the ATO is currently using data matching – by comparing all payments made through a ride sourcing provider (e.g. Uber) to ride sourcing drivers (e.g. Uber drivers) – to check whether such drivers have declared payments as assessable income in their tax returns.
If you are deriving cash income from such sharing economy activities, please contact your Nexia Edwards Marshall adviser so that we can help you comply with your tax registration, reporting, lodgement and payment obligations as well as determine if the money earned should be subject to GST. Income derived through the sharing economy (e.g. Airbnb and Uber ride-sharing) must be declared in your income tax return.
Penalties and interest will be charged on the tax avoided. Penalties can be significantly reduced by making a voluntary disclosure to the ATO and in that event, the ATO is more amenable to arranging a debt repayment plan. The ATO is much less amenable to reducing penalties and arranging a payment plan if avoided tax is discovered during the course of an audit.
For any questions or to discuss any of the above in relation to your personal situation, please contact Grantley Stevens or your Nexia Edwards Marshall Adviser.
The material contained in this publication is for general information purposes only and does not constitute professional advice or recommendation from Nexia Edwards Marshall. Regarding any situation or circumstance, specific professional advice should be sought on any particular matter by contacting your Nexia Edwards Marshall Adviser.