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If you have a residence/apartment, a part of commercial residential premises, then that apartment will be treated like other residential rental properties. You are not subject to GST on related income and you won’t be able to claim GST credits for related purchases.

While commercial residential premises are not liable for GST, an individual apartment itself doesn’t have the features of commercial residential premises.

What If You Lease?

You make an input taxable supply of residential premises, if you are leasing your apartment either to a guest or management company (to use it as a portion of the commercial residential property). It means you:

  • are not subject to GST on related income
  • are not allowed to claim GST credits for anything you import or buy to lease the premises.

With any rental property, you need to declare the income you get in your income tax return, and you are allowed to claim tax deductions for various related expenses.

What If You Sell?

If you sell your apartment, it is input taxable and considered residential premises, irrespective of whether it’s situated within commercial residential premises. It means you:

  • are not subject to GST on related income
  • are not allowed to claim GST credits for anything you import or buy to make the sale.

When you sell your apartment, if you make a capital gain, you may require to pay CGT, just as you would when you sell any rental property.

Deductions and Tax Implications for Owning a Holiday Home

  • Not rented out holiday home

If you have a holiday home but don’t rent it, you don’t include anything in your tax return until you sell the property. You are required to calculate your capital gains or loss when you sell the property. From the time, you buy the property until you sell it, you need to keep all records to work out the capital gain or loss when you sell.

  • Holiday home – rented out

You need to add the rental income you receive if you rent out your holiday home. You are allowed to claim expenses for the property that are incurred for generating rental income. You have to apportion your expenses if:

  • your property is available for rent for a part of the year
  • your property is being in use for personal purposes for part of the year
  • only a portion of your property is used to receive rent
  • you charge less as compared to market rent to friends or family to use the property
  • Holiday home – not available for rent

Expenses might be deductible for some time when the property is not rented out if the property is available for rent. Factors that may show that a holiday home is not genuinely available for rent include:

  • The property is only promoted in certain places, for example, which limits the number of people who may see it.
    • By word of mouth
    • at your workplace
    • on restricted social media groups
    • promoting when it’s not an annual holiday period where there are low chances of it being rented.
  • The condition of the property, location, or access to the property means that it is not likely that tenants will seek to rent it.
  • You’ve put unreasonable conditions on renting out the property that limits the chances of renting out the property.
  • You refuse to rent the property to people who are interested in it without any appropriate reasons.
  • Part-year rental holiday home

If you rent out the property and use it for personal use, you need to apportion your expenses. You are not permitted to claim deductions for the portion of expenses related to your personal use if it was not available for rent, such as when it is used for yourself, family or friends. If your property is rented to friends or family at less than market rates, your deductions for the time are limited to the rent amount you received.

Conclusion

The blog shares GST treatment in case you own a holiday home that is a part of commercial residential premises. Furthermore, for more information, you can contact Reliable Melbourne Accountants.

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