Short-term rentals and tax: What you need to know

Assistant commissioner Karen Foat said the ATO recognises that “circumstances over the past six months have seen many short-term rentals see cancellations or sit vacant as a result of either COVID-19 or bushfires”.

In situations where COVID-19 or natural disasters have adversely affected demand, including the cancellation of existing booking for a short-term rental property, the Tax Office has highlighted how deductions are still available, provided a property was still “genuinely” available to rent.

However, where owners have decided to instead use the property for private purposes, offered the property to family or friends for free, offered the property to others in need or stopped renting the property out, they can’t claim deductions for these periods.

Elaborating further, Ms Foat said that “generally speaking, if your plans to rent a property in 2020 were the same as those for 2019, but were disrupted by COVID-19 or bushfires, you will still be able to claim the same proportion of expenses you would have been entitled to claim previously”.

To determine the proportion of expenses that can be claimed for short-term rental properties impacted by COVID-19 or bushfires, the ATO has offered up a reasonable approach: To apportion expenses based on the previous year’s usage pattern, unless you can show it was genuinely available for rent for a longer period of time in 2020.

If the owner of the property, family or friends move into the property to live in it because of COVID-19 or bushfires – whether for a reduced rate or at no cost – this must be counted as private use when working out any 2020 claims.

The ATO has flagged that factors such as reserving the property or leaving it vacant over peak periods, not charging the market rate and the types of terms and conditions of the bookings are all taken into consideration when deciding if active and genuine efforts are being made to ensure a property is available for rent.

If a property is not genuinely available for rent, expenses claims must only be limited to the days when it is.

But where an owner allows friends or family to stay in the property at a reduced price, deductions can still be claimed, albeit limited to the amount of rent received for these periods.

Most importantly, and no matter the circumstances, the ATO has also flagged the importance of keeping a record of all expenses.

“Without good records, you will find it difficult to declare all your rental-related income in your tax return and work out what expenses you can claim as deductions,” Ms Foat explained.

According to the Tax Office, the number one cause of disallowed claims is taxpayers being unable to produce receipts or other documents to support a claim.