Holiday Homes May Disappear

Potential changes to capital gains tax won’t just hurt investors but could also make it harder to rent a holiday home in the future.

Analysis by Compare the Market shows that holiday homes and short-term rentals account for about 20% to 25% of holiday accommodation in Australia.

Spokesman Chris Ford says any potential change to capital gains tax in the upcoming Federal Budget could impact holiday plans in the future.

He says Australia is the second only to Cyprus as the best country in the world to own a holiday home under current tax settings.

Ford says changes to capital gains tax could discourage people from buying a holiday home. This comes as the Australian Taxation Office is looking to tighten rules on holiday home deductions when the property is also used privately.

Previously holiday homes could be negatively geared if owners could apportion deductions based on days of private use but new draft rules mean that if holiday homes are not used mostly for productive income, they could be treated as a leisure activity. This means tax deductions will be limited to those that directly relate to earning rental income, such as advertising costs.

Under the draft rules, even limited personal use can result in no deductions at all for major costs like interest, rates and land tax.