Australians are now holidaying at home, and many investors are now looking at benefits of owning a holiday let 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 full 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 holiday let.
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 which are used as a Holiday let and advertised through sites such as Air BNB or Stayz, will be treated as a regular residential property.
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, fixed flooring such as tiles.
Capital Works are depreciated as a regular residential property at just 2.5% per annum. This is different from the traditional short term accommodation properties such as a Motel, Hotel or guest house which is depreciated at a higher rate of 4% per annum.
As holiday lets are treated the same as a residential property, the ATO government changes made on the 9th May 2017 will apply on second-hand properties. Any assets which 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.