Many Australians own a holiday place that’s used two ways, family time during the year, and short-stay rentals (Airbnb, Stayz and similar) to help cover the costs. The Australian Taxation Office has released draft guidance that draws a much sharper line between:
- a genuine rental investment, and
- a lifestyle asset that earns some incidental rent.
The drafts are TR 2025/D1, PCG 2025/D6 and PCG 2025/D7, and they signal a strong compliance focus going forward.
What the ATO is trying to stop
In plain terms, the ATO is targeting situations where a property earns some rental income, but the owner’s main purpose is private enjoyment. If the ATO forms the view that the property is mainly a “holiday home” (a leisure facility), section 26-50 can limit deductions severely.
What doesn’t change
You still need to declare all rental income, even if it’s occasional, and even if it comes through informal arrangements or short-stay platforms.
What could change for deductions
Under the draft approach, if your property is treated as a holiday home (leisure facility), you may be denied the usual “ownership” deductions like:
- interest on loans
- council rates and land tax
- insurance
- repairs and maintenance (to the extent they relate to private use or the property’s ownership)
Instead, deductions may be limited to more direct rental costs such as cleaning between guests, platform or agent fees, and advertising.
What puts you in the ATO’s spotlight
The ATO is looking closely at patterns that suggest lifestyle use is driving the decision, for example:
- blocking out peak periods for private use (school holidays, ski season, long weekends)
- inconsistent advertising or a listing that isn’t genuinely “available” to rent
- pricing that appears above market in a way that discourages bookings
- ongoing losses year after year without a clear commercial explanation
How apportionment is expected to work
If your property is not treated as a holiday home, you can still claim deductions, but only to the extent they relate to earning rental income. For mixed use properties (some private use, some rental use), the ATO expects a “fair and reasonable” apportionment, commonly by:
- time, based on days rented or genuinely available for rent on commercial terms
- area, where only part of the property is rented (for example, a separate unit or room)
Record-keeping matters more than ever. The ATO can match booking platform data with your income and your claimed deductions.
Why this can cost real money
A property might earn decent off-peak rent, yet still be treated as a holiday home if the owner keeps peak periods for personal use. If that happens, deductible expenses can drop from “most ownership costs” to a smaller set of direct rental expenses, increasing taxable income and the tax bill.
Extra traps to watch
Co-ownership: income and deductions are generally split according to legal ownership interests, not who used the property more.
Renting to relatives at discounted rates: this can restrict deductions further and can raise questions about whether the arrangement is commercial.
What to do now
Even though the guidance is in draft, it’s worth reviewing your setup early. Some commentary indicates the proposed start is 1 July 2026, with transitional relief discussed for arrangements in place before 12 November 2025. The final position may change, so it’s smart to prepare based on the direction of travel.
Practical steps we recommend:
- Be clear on intent: are you genuinely trying to maximise rental income, or mainly keeping the property for private holidays?
- Advertise consistently, including peak periods if your position is “investment first”.
- Set market pricing and keep evidence of comparable listings.
- Keep strong records: booking calendar history, screenshots of listings, enquiries, price changes, and a simple log of private use.
- Review your strategy before making big changes, since changes can have CGT, duty, and legal cost impacts.
Bottom line
The ATO isn’t stopping people from earning rental income from a holiday property. It is tightening the rules so deductions reflect the property’s real purpose and real use. With a commercial approach and solid records, many owners should still be able to claim appropriate deductions.
If you have questions or concerns, please do not hesitate to contact our office to speak to one of our team.
