What You Need to Know in 30 Seconds
- ATO draft guidance changes holiday home tax rules
- Certain holiday homes may now be treated as leisure facilities under section 26-50
- Deductions denied unless the property is mainly used to earn rental income
- “Mainly” is judged by availability during peak seasons, not just total days
- Transitional relief: No compliance reviews before 1 July 2026 for arrangements entered into before 12 Nov 2025
- Owners should review rental strategy, document efforts, and seek advice
The Detail
The Australian Taxation Office (ATO) has released draft guidance that significantly changes how holiday homes are treated for tax purposes. These changes will impact property owners who rent out holiday homes but also use them personally.
Key Drafts Released
- TR 2025/D1 – Income tax: rental property income and deductions for individuals who are not in business
- PCG 2025/D6 – Apportionment of rental property deductions – ATO compliance approach
- PCG 2025/D7 – Application of section 26-50 of the Income Tax Assessment Act 1997 to holiday homes that you also rent out – ATO compliance approach
What's Changing
The ATO will now treat certain holiday homes as leisure facilities under section 26-50 of the Income Tax Assessment Act 1997. This means:
- Owners cannot deduct expenses such as interest, council rates, and maintenance unless the property is mainly used to generate assessable income.
- The definition of “mainly” is no longer a simple count of rental availability days.
- For homes in seasonal hotspots, deductions may be denied if the property isn’t available during peak periods.
Nuanced Approach
Under TR 2025/D1, the ATO will consider multiple factors to determine if a holiday home is primarily for income generation. The draft PCGs outline indicators that a property is not mainly used for rental income, such as:
- Limited availability during high-demand seasons
- Extensive personal use
- Marketing that discourages genuine rental activity
Transitional Compliance
Acknowledging this is a shift in interpretation, the ATO has offered a transitional approach:
- No compliance reviews for section 26-50 application on expenses incurred before 1 July 2026, provided:
- The expenses relate to arrangements entered into before 12 November 2025
- The property is a holiday home used as a rental property
Action Steps for Owners
To stay compliant and protect your deductions:
- Review Your Rental Strategy
- Ensure your property is available during peak holiday seasons.
- Avoid blocking out high-demand periods for personal use.
- Document Genuine Rental Efforts
- Keep records of advertising, booking platforms, and inquiries.
- Show that your property is marketed competitively.
- Track Usage and Availability
- Maintain a clear calendar of rental vs personal use.
- Be prepared to demonstrate that income generation is the primary purpose.
- Plan Ahead for Transitional Relief
- If you have existing arrangements, confirm they were entered into before 12 November 2025.
- Understand that compliance reviews will resume after 1 July 2026.
- Seek Professional Advice
- Tax implications can be complex, consult your accountant or tax adviser early.
