Just when many Australians are considering getting away for a mid-winter break, the ATO is reminding taxpayers that it is paying close attention to rental properties located in popular holiday destinations around Australia.

The ATO recently issued a statement saying that last year it identified a large number of mistakes with deductions for rental properties, particularly with regards to holiday homes. It claims that it noticed some people claiming deductions for holiday homes even where the property is not actually being rented out, or not “genuinely available” for rent.

While of course there is no problem with people using their rental property for a holiday, the ATO is at pains to point out that holiday home owners need to remember they can only claim tax deductions for expenses made during a period when the home is rented out or genuinely available for rent.

It also emphasises that property owners need to understand that if they rent their property at a discount, or “mates rates”, they can only claim deductions equal to the amount of rent charged. The ATO cites one case where the taxpayer had to pay back more than $45,000 in tax from deduction claims made for a holiday home they were renting out to friends and family below the market rate.

Property owners should be aware that technology enhancements and the ATO’s extensive use of data is allowing it to identify claims that can be deemed suspect, or in need of checking, now more than in past income years.

There is of course nothing untoward with rental property owners claiming a deduction on expenses for an investment property when it is rented out — this is a stalwart of the tax regime concerning investment property. But even if it isn’t rented out, it is still possible to claim a deduction if the property is “genuinely available” for rent.

To ensure claims made regarding holiday rental property are less likely to be challenged by the ATO, there are four questions to keep in mind.

How do you advertise your rental property?

Owners need to advertise in a way that maximises exposure to potential tenants, such as an online site. Advertising in ways that limits exposure to potential tenants, such as by word of mouth, can mean that the ATO has more reason to think the property may not be “genuinely available” for rent.

What location and condition is your rental property in?

It is important that the rental property is in a location, and maintained in a condition, that tenants will want. If the property is poorly cared for, or in a remote and uninviting area, it is unlikely to be tenanted, and may not pass an ATO assessment as being genuinely available.

Are there reasonable conditions for renting the property, and is the rent charged at market rates?

If an owner places unreasonable conditions that reduce the likelihood of the property being rented out, such as setting the rent above the market rate, the property may not be considered genuinely available for rent.

Likewise, if you, your family or your friends stay for free, your property will not meet the criteria during that time period. If the property is being tenanted at a discounted rate (“mates rates”) then the allowable deductions are limited to the amount of rent charged, not market rates.

Are interested tenants accepted, unless there is a good reason not to?

If an owner refuses to rent out the property to interested potential tenants without a good reason, this indicates that they may not have a genuine intention to make income from the property and could be reserving it for private use. In this case, the property will probably not meet the ATO’s criteria for being genuinely available for rent.