When a holiday home enters a property settlement, it’s no longer a simple beachside retreat—it becomes a complex asset with legal and financial intricacies.
A beach house is the dream of many city and rural dwellers, offering a place to escape, relax, and enjoy the natural beauty of coastal living. It is cherished by couples and families who may not have easy access to beachside recreational activities in urban or remote areas. However, when a holiday home becomes part of a family law property settlement, its division can be far from straightforward. Rising ownership, maintenance, and taxation costs have further complicated matters, making it crucial for clients to understand their financial obligations and legal considerations.
The Rising Value and Costs of Holiday Homes
As more people opt for the coastal life, the cost of holiday homes increases significantly, making them more out of reach; increasingly, they become a status symbol. It is not only the initial purchase cost that has significantly increased, but also the holding and maintenance costs. The significant uplift in values due to the Covid-induced property boom has resulted in a correspondingly higher statutory value that various levels of government use to gauge taxes.
Case Study: Noosa’s Holiday Home Market
Noosa, one of the Sunshine Coast’s most popular holiday destinations, has a high proportion of holiday homes and has seen a dramatic lift in statutory land values. This increase has directly impacted non-resident owners, with land tax obligations skyrocketing - many non-resident owners are experiencing annual increases from $15,000 to $90,000. In addition to land tax, owners must factor in council rates and maintenance costs, which are typically higher in a coastal environment than for an equivalent city property.
“Properties that have been in families for generations are being sold due to these holding costs.”
Short-Term Letting and Regulatory Challenges
Many holiday homeowners rely on short-term letting to offset the costs of ownership. However, Noosa Council has initiated a requirement for properties to gain approval for short-term rental if there is an intention to let the property for more than 60 days per year. To obtain approval, owners must provide evidence of prior holiday letting activity.
In many cases, properties that are attracting land tax assessments of more than $50,000 per year are unable to offset this cost by holiday letting the property. Real estate agents in Noosa have noted that buyers are now returning to questioning the income-generating potential and ongoing expenses of holiday homes, something that was overlooked in the past few years during the pandemic property boom, when buyers were purchasing more blindly without considering these factors.
The Impact of Short-Stay Rental Approvals on Valuation
In prime holiday locations around Noosa, there can be a considerable price difference between properties with short-stay rental approval and those without. This distinction is crucial in family law property settlements, as it directly affects the valuation and potential financial return on the asset.
When considering the division of a holiday home, it is essential to note that short-stay rental approvals are attached to the improvements (the house itself) rather than the land. If the property undergoes renovations, the approval typically remains intact. However, if the home is demolished, the short-stay approval is extinguished—significantly impacting its future value and usability.
Key Capital Gains Tax Considerations for Holiday Homes
When a holiday home is included in a property settlement, Capital Gains Tax (CGT) may apply, as these properties are generally not exempt under the principal place of residence rule. In cases of separation, the Relationship Breakdown Rollover provision may allow for CGT deferral when ownership is transferred, postponing the tax obligation until the property is sold in the future. Additionally, retrospective valuations may be required to determine market value at key dates for CGT calculations. Understanding these factors is crucial for ensuring tax compliance and fair asset division. Learn more about CGT implications in property settlements.
A Simple Beach House No More
What was once a straightforward holiday home now involves complex legal, financial, and regulatory considerations - with various popular beachside destinations have differing obligations for holiday letting.
When a beach house is included in a family law property settlement, it is critical to consider the intricacies of the local planning rules which may impact on value, potential of holiday income, ongoing costs and tax obligations. Understanding these factors ensures a fair and informed decision when determining the value and who may get the beach house.
If you or your clients require professional guidance on the valuation of a holiday home in a property settlement, our team at Acumentis is here to help. Reach out to us for expert property valuation and advisory services.
The simple holiday beach house may not be so simple anymore.