In the age of AirBnBs and rentvesting, the tax implications for individuals in the holiday rental property market is becoming more and more complex. We speak with Matthew McKee, FTI and Partner at Brown Wright Stein Lawyers, on what he sees as the key issues and challenges ahead of his session at The Tax Summit.An expert in this field, Matthew assists accountants and lawyers in advising their clients on all aspects of tax and superannuation for SMEs and high net wealth individuals and family groups.
Matthew’s practice has a particular focus on state taxes, including duties, land tax and payroll tax.
His session, Best Practice for holiday rental properties and retention of evidence, will discuss practical issues in minimising tax risk on holiday rental properties, covering questions such as:
- Can your client provide evidence to respond to a day-by-day scrutiny of the electricity bill by the ATO?
- Is it acceptable that your client’s family accompanied your client when they visited to maintain the property?
This session looks at common holiday rental property scenarios, the applicable law (and the ATO’s current interpretation of it), as well as best practice record and evidence retention.
Q: In the age of AirBnBs and rentvesting, what are the main issues clients need to watch out for when it comes to minimising tax?
Matthew: This area is becoming increasingly more complex, so firstly, it’s important to consider the impact that the renting out of the family home for AirBnB, for weekends, holidays and so forth has on the availability of the main residence exemption.
Secondly, it’s also important to consider the tax impact of the personal use of holiday homes, particularly over peak periods.
Thirdly, the denial of holding cost deductions where property is considered to be "vacant land" should also be high on the radar.
Q: What are some of the ‘unpleasant surprises’ clients may face when managing the tax implications of their holiday rentals?
Matthew: The key ‘surprise’ that keeps popping up, especially over the last few years is that there may be a reduction in deductions if it is considered that the property is not "genuinely available for rent" due to the owners’ own use of the property. In my experience, I have seen a number of clients surprised by this and their usual response has been to blame their accountant for not informing them that the personal use could lead to denial of deductions. So it’s important that tax and accounting professionals are across this particular issue and foresee any roadblocks ahead.
Q: What can tax practitioners do to help educate clients and avoid clients facing confusion/stress or anxiety over these issues?
Matthew: There’s a lot of information, and misinformation floating around online, and it can confuse clients who want to know how the regulatory requirements apply to their particular property. The usual problem is that clients have done things they shouldn’t have - because they didn’t realise it would cause them a problem.
Practitioners need to proactively explain the guidelines to their clients and also manage their expectations. The tax issues associated with rental properties can be navigated.
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This is where this session at The Tax Summit will be particularly helpful for practitioners. The tax implications of rental property is a regular area of practice for all practitioners, especially as momentum continues to grow in the holiday property ‘gig economy’. A strong grasp of the fundamentals is essential, particularly given the ATO's increased focus on rental properties.
Q: Apart from the rental property implications and challenges, what else do you see are the top trending topics in Tax in 2020?
Matthew: There’s a lot of uncertainty in various core areas, such as Division 7A. However whilst it can be very frustrating, it definitely makes the job interesting. Other trending issues to watch out for are trust distributions and section 100A and the hybrid mismatch rules.
When it comes to the top challenges facing practitioners this year, these issues, in particular, come to mind:
- The application of the small business CGT concession, following the recent decision in Commissioner of Taxation v Eichmann  FCA 2155
- As with any year, getting across the volume of recent and prospective legal and regulatory changes.
- Adapting to the expected guidance from the ATO on Section 100A.
Q: What excites you most about Tax in 2020?
Matthew: I’m very excited to be both speaking and attending The Tax Summit. With the calibre of the 90+ speakers that have been assembled by The Tax Institute, plus the breadth and depth of the topics covers, it’s hard to choose which sessions to go to, as they all look extremely valuable.
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