If mixed-use asset rules apply to your holiday home, income from private use is exempt.
You do not need to declare this as income.
Private use of your property includes use by:
- you or your family, even if your family member pays rent
- non-associated people for less than 80% of market rates.
All other amounts you receive from renting out the holiday home are income.
Opting out of the rules
There are two situations where holiday home owners can opt out of the rules and not declare rental income from the holiday home. However, companies that own holiday homes cannot opt out – they must declare all rental income earned.
You can opt out if you earn:
- less than $4,000 rental income from the property for the year
- gross income of less than 2% of the holiday home’s value and make losses because your deductible expenses were more than the income.
If you opt out, you do not need to include the rental income from the holiday home in your annual tax return. If it’s not included, rental expenses cannot be claimed.
Expenses that relate only to earning the rental income can be fully deducted. This includes the costs of:
- advertising for guests
- repairing damage caused by guests.
Expenses that relate to both earning the rental income and private use of the holiday home are only partly deductible and need to be apportioned. This includes costs like:
- utility bills
- mortgage interest paid
You cannot deduct expenses that only relate to the private use of your holiday home.
Mixed-use assets and GST
The mixed-use asset rules also apply to GST as well.
If you're GST-registered, you can claim GST on the percentage of expenses that relate to the business use of the mixed-use asset.
Losses from holiday homes
Expenses apportioned to your holiday home’s income-earning use might be more than the income you get from the rental. This will result in a loss.
If you’ve made a loss from renting out the property, you may not be allowed to deduct all of your apportioned expenses for that year. This will be the case if your gross income from the income-earning use is less than 2% of holiday home's value. In this situation, you can only deduct your apportioned expenses up to the amount of the rental income you got from the holiday home.
You’ll have to carry forward the deductions that are over and above the rental income you got from the holiday home. You will need to use those deductions against income from your holiday home in a future tax year when you’re not making a loss.