Holiday Homes: New ATO Guidance Could Affect Your Deductions

Own a holiday home that you also rent out? New ATO guidance means it is worth taking a closer look at how and when you use the property.

Under the ATO's 2026 guidance, if a property is a holiday home, expenses associated with owning and using the property — such as interest, council and water rates, body corporate fees, and tax, repairs and maintenance — are only deductible where the property is mainly used, or held for use, to produce rental income.

Importantly, this isn't simply a matter of counting the number of days the property is advertised for rent.

The ATO will look at the overall circumstances, including:

• how much time the property is genuinely dedicated to earning rental income;

• when and how often the owners, their family or friends use it;

• whether it is made available for rent during peak periods, such as school holidays, Christmas, Easter or other periods of high demand; and

• whether the way the property is managed shows that earning rental income is being prioritised over private use.

  
  

For example, an owner who makes a coastal property available throughout the busy summer period and limits their own holidays to quieter periods may be able to demonstrate that the property is mainly held to earn rent. The ATO gives an example of an owner who reserves four weeks for herself during a low-demand period but otherwise achieves high rental occupancy. The ATO accepts that rental income is being prioritised, although deductions still need to be apportioned for her private-use periods.

By contrast, an owner who advertises a beach house year-round but blocks it out over Christmas, Easter and the summer school holidays for possible family use may fail the test — even if the family doesn't ultimately stay there. In the ATO's example, the rental income still needs to be declared, but deductions for ownership and use expenses are denied.

There is some good news. Even where the property doesn't satisfy the "mainly used" test, expenses that relate solely to earning the rental income, such as accommodation platform fees, management fees and cleaning after guests leave, may still be deductible.

The key message? If you own a holiday home that you also rent out, don't assume that advertising it for rent automatically makes all of the property's expenses deductible. How you actually use the property — particularly during peak holiday periods — can make a significant difference.

Contact your Client Manager if you would like to discuss in more details how this may apply to you.