Despite the housing crisis, despite the rentals crisis, holiday house landlords claim year-round tax breaks on short-term rentals often vacant. In a letter to Tax Commissioner Chris Jordan, Tim Evans asks why.
Dear Tax Commissioner Chris Jordan,
We are in the midst of the worst housing rental and affordability in living memory. This in part has resulted from the common practice among owners of Airbnb and short-term/holiday rental properties claiming up to 100% of annual expenses on these properties simply because they have made the properties “available to rent”, even though they may only be rented out for a fraction of the year.
It is clear that this does not pass the pub test, nor in reality does it pass the ATO’s guidelines in my view, which state that the property must be genuinely available to rent. If the rental property is available to rent at holiday rental prices or only for short periods, it is not genuinely available to rent.
Claiming a tax deduction for the full annual expenses therefore effectively results in ordinary taxpayers subsidising the owners of Airbnb and short-term/holiday rental properties. It also has the effect of holding rental prices higher than would otherwise be the case and higher purchase prices for such properties.
We note there was a change to the tax guidelines on tax deductibility of expenses following the publication of the above article, which goes some way to clarifying the eligibility of deductible expenses. Notwithstanding this, the new guidelines are still open to interpretation.
Genuinely available to rent
While we welcome the changes to the guidelines and believe they are intended to clarify the eligibility of tax deductible expenses, they still do not make it absolutely clear.
For a property to be genuinely available to rent, the owner must not “have conditions that are not so restrictive that tenants are likely to rent the property”. If the Airbnb and Holiday rental properties are offered at the holiday rental rates, or even at a discount to these rates, or the property is only offered for short-term rentals, then this condition cannot be met.
The new guidelines do go some way to addressing this in the next section of the guidelines, where it is stated that properties are not genuinely available for rent if “setting the rent above the rate of comparable properties in the area”. The question here that needs clarification is what are “comparable properties”? If these are other Airbnb and short-term rental properties, the guideline is a nonsense.
The only test of “genuinely making the property available to rent” is to set the rent at a rate so that the property can actually be rented for the entire year. If the property is not rented, then by default, the rent is too high and,
the tax deductibility of expenses relating to the property should be restricted to the proportion of the year the property is rented out.
Clarifying of expenses
The simplest and fairest way to resolve this conundrum is to clarify that expenses incurred on all Airbnb, holiday rental and short-term rental properties can only be claimed for the proportion of the year that the property is actually rented out.
Owners of these properties can then decide if they want the access the full tax benefit by renting the property out for the whole year on the long-term rental market; or if they want to keep the property on the Airbnb and holiday rental market, they will only be able to claim a proportion of the expenses.
This will be a fair choice owners can make, and it will ensure that ordinary taxpayers are not subsidising these properties. It will also result in more properties coming onto the long-term rental market, which will help ease the present rental crises and the flow on effect will be a reduction in the prices of such properties because the subsidy will no longer be there.
I therefore humbly ask you, Mr Jordan, to make it absolutely clear that the expenses associated with Airbnb, holiday rental and short-term rental properties can only be claimed for the proportion of the year for which they are actually rented.
Thank you, on behalf of those of us who just want a place to rent for a reasonable price.