Can you claim Tax Depreciation on holiday let?
Australians are now holidaying at home, and many investors are now looking at the benefits of owning a holiday home over renting on a permanent basis. But what does this mean for depreciation deductions?
You first need to look at whether you will be renting the whole or part of the property, as different calculations will be needed to establish the depreciation deductions you are eligible to claim on an annual basis. You can claim full tax depreciation deductions if you use the full investment property as a holiday rental.
Where you rent part of your property, such as a bedroom or a granny flat, you can only claim part of the depreciation on a pro-rata basis. Properties that are used as a holiday let and advertised through sites such as Air BNB or Stayz will be treated as regular residential properties.
As with a residential investment property, we depreciate all assets, split between two allowable deductions: 1) Div 40 (Plant & Equipment), which is generally loose in nature or mechanical. This is deprecated at different rates, as determined by the ATO Tax Rulings, and 2) Div 43 (Capital Works), which includes the main building structure and any fixed assets such as kitchen cupboards and fixed flooring such as tiles.
Capital Works are depreciated as regular residential property at just 2.5% per annum. This is different from traditional short-term accommodation properties such as a motel, hotel, or guest house, which are depreciated at a higher rate of 4% per annum.
As holiday lets are treated the same as residential properties, the ATO government changes made on May 9 will apply to second-hand properties. Any assets that are bought new, such as furniture purchased for the holiday let, will not be affected by these changes. If you would like to find out more about the impacts of these government changes, see our video attached or on our website.