ATO new guidance on holiday rental properties – what you can and can’t claim

Tax deductions for holiday house rental properties: what owners need to know following the ATO’s new guidance

With the continued growth of Airbnb, Stayz and other short-term rental platforms, many Australians are using holiday homes to generate additional income while still enjoying the property themselves throughout the year.

However, the Australian Taxation Office (ATO) has recently finalised stricter guidance for holiday homes and short-term rental properties, increasing scrutiny on owners who privately use their properties during peak periods while still claiming significant tax deductions.

From the 2026-27 financial year onwards, holiday home owners may face greater restrictions on claiming deductions for expenses such as mortgage interest, council rates, insurance and repairs if the property is not genuinely operated as an income-producing investment.

For owners of holiday houses, beach homes, ski apartments or short-term rentals, understanding how these rules apply is becoming increasingly important.

How holiday home tax deductions work

In general, property owners can claim deductions for expenses incurred in earning rental income. This may include expenses such as:

• Mortgage interest
• Council and water rates
• Insurance
• Repairs and maintenance
• Property management fees
• Advertising expenses
• Cleaning costs
• Depreciation and capital works deductions

However, where a holiday property is used for both private purposes and rental income, deductions usually need to be apportioned between income-producing and private use.

This means owners cannot automatically claim all expenses simply because the property is listed online or rented out for part of the year.

The ATO expects the property to be genuinely available for rent and operated in a commercial manner.

ATO holiday homes guidance

What has changed from 2026-27?

The ATO has now finalised updated guidance that places greater emphasis on whether a holiday home is “mainly” used to produce assessable income.

Previously, many owners relied on the fact that the property was advertised for rent for significant parts of the year, even though they privately used it during popular holiday periods.

Under the ATO’s updated position, simply advertising a property online may no longer be enough.

The ATO will now look more closely at:

• Whether the property is genuinely operated to generate income
• When the property is available for rent
• Whether owners block out peak periods for personal use
• Whether booking requests are declined
• Whether rental pricing reflects market rates
• The overall pattern of private versus commercial use

This means some holiday home owners may no longer be entitled to claim the same level of tax deductions they have previously claimed.

The updated guidance will apply when assessing tax returns from the 2026-27 financial year onwards.

Peak holiday periods are now a major focus

One of the biggest shifts in the ATO’s approach is the focus on peak demand periods.

The ATO has indicated that where owners reserve the property for personal use during the most commercially desirable times of the year, this may suggest the property is primarily being held for lifestyle purposes rather than as a genuine investment property.

Examples may include:

• A beach house unavailable during summer school holidays
• A ski property blocked out during winter season
• A city apartment unavailable during major sporting or festival events
• Owners repeatedly rejecting booking requests during peak periods

Importantly, the ATO has stated that not all periods of the year are considered equal. A property may technically be listed for rent for most of the year, but if it is unavailable during the periods when demand is strongest, this could still affect deductibility.

The ATO has also noted that peak periods may differ depending on the property’s location and type.

When a property may not be genuinely available for rent

The ATO has long held concerns around holiday homes that are technically listed for rent but are not genuinely available to the public on a commercial basis.

Examples where a property may not be considered genuinely available for rent include:

• Excessively high rental pricing
• Restrictive booking conditions
• Limited advertising
• Refusing most booking requests
• Only making the property available to friends or family
• Blocking out large parts of the year for personal use

Where a property is not genuinely available for rent, owners may be denied deductions for some or all ownership expenses.

What deductions could potentially be denied?

Where the ATO determines that a holiday home is not mainly used to produce assessable income, deductions for ongoing ownership costs may be reduced or denied.

This may include:

• Mortgage interest
• Council and water rates
• Insurance
• Land tax
• Body corporate fees
• Capital works deductions

However, some direct rental-related expenses may still remain deductible, including:

• Advertising costs
• Booking platform fees
• Cleaning costs after guest stays
• Property management commissions

The impact could be significant for owners relying on rental deductions to offset holding costs or negative gearing losses.

Renting to family and friends

Special care should also be taken where holiday homes are rented to family members or friends.

If the property is rented at below-market rates, deductions may need to be reduced accordingly.

For example, if a property that would normally rent for $500 per night is provided to family members for $200 per night, the ATO may consider part of the arrangement to be private use rather than a commercial rental arrangement.

The ATO may also examine whether the property is genuinely being operated with an intention to maximise income.

Record keeping is becoming increasingly important

The ATO is expected to rely heavily on data matching and supporting evidence when reviewing holiday home claims.

Owners should maintain thorough records, including:

• Booking calendars
• Online listings
• Evidence of market rental pricing
• Booking enquiries and accepted bookings
• Periods of private use
• Property management agreements
• Cleaning invoices and rental expenses

Good record keeping can help demonstrate that the property is genuinely being operated as an income-producing investment.

How to calculate deductible expenses for a holiday rental property

Where a holiday property is used both privately and for rental purposes, expenses must generally be apportioned based on the period the property is rented or genuinely available for rent.

The basic approach is:

Deductible expense = Total expense × (days rented or genuinely available for rent ÷ total days in the year)

For example, if your annual council rates are $1,000 and your property is rented or genuinely available for rent for 90 days during the year, the deductible portion would be calculated as:
$1,000 × 90 ÷ 365 = $246.57

This apportionment method typically applies to ongoing ownership costs such as:

• Council and water rates
• Insurance
• Mortgage interest
• Land tax
• Utilities (where applicable)

It is important to note that days the property is blocked out for private use are not deductible, even if the property is advertised online for the remainder of the year.

Maintaining accurate booking calendars and records of private use is essential to support these calculations.

Can I claim travel expenses associated with an investment property? In most circumstances, it’s a hard NO!

Travel expenses relating to residential rental property are generally not deductible for most. The only way an individual can claim travel expenses relating to a rental property is if:

• you are an excluded entity, (such as a corporate tax entity, a superannuation plan that is not an SMSF, a public unit trust, a managed investment trust, or a unit trust or a partnership, if each of its members are entities of a type listed above at that time during the income year).
• you are using the property in carrying on a business (including a business of letting rental properties ie you are the property agent), or
• the property is commercial, not a residential rental property.

Travel expenses include the costs of travel to inspect, maintain or collect rent for the property.

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