The Australian Taxation Office (ATO) has released new draft guidance that could significantly change how deductions on holiday homes are treated. If you own a holiday property that’s sometimes rented out, this update could impact your next tax return.
What’s changing
In the past, owners who made their holiday home “genuinely available for rent,” such as through booking platforms or local agents, could usually claim deductions for the period the property was available. This applied even if the property was only rented occasionally.
Under the ATO’s new position, that may no longer be enough. If a holiday home isn’t mainly held for the purpose of earning rental income, many of the usual deductions could be knocked back. While costs directly related to rental activity, like advertising or cleaning, may still be deductible, broader costs such as interest, rates, insurance and depreciation might not be.
A key part of the ATO’s revised view is how the property is actually used. If you regularly use it yourself, block it out during peak seasons like Christmas or school holidays, or limit bookings in a way that makes it unlikely to be rented, many tax claims may no longer be accepted.
Insights from Knight’s Head of Accounting and Tax
Heather Moore, Head of Accounting and Tax at Knight, says the message from the ATO is clear. If you treat the property like a personal getaway, don’t expect to treat it like an investment come tax time.
“They’re pinning it down to peak periods, because if that was a true income-generating investment property, then owners would be maximising the earning ability of that property.”
Moore says it’s no longer enough to just list the property online and claim deductions. How you use the property across the year, and the rental activity it actually generates, will now matter more than ever.
What to consider now
- If the property is used mostly by you, friends or family, especially during busy periods, it may be viewed as a lifestyle asset, not a rental investment.
- Review how and when your property is listed. Make sure it’s priced fairly, accessible for bookings, and marketed properly to show genuine rental intent.
- Keep clear records of advertising, inquiries, bookings and blocked-out dates to support any claims.
- Expenses tied directly to earning rental income, such as platform fees, cleaning or repairs between bookings, are more likely to stay deductible.
When it takes effect
These changes are expected to apply from 1 July 2026. That gives owners time to review their arrangements and make any necessary adjustments.
If you have a holiday home or are thinking about buying one, now is a good time to speak with your adviser about how the new guidance may affect you.