ATO Releases New View On Tax Treatment Of Holiday Homes
Do you own a holiday home which you rent out from time to time? If so, your income tax cost from the arrangement may now become more expensive.
What was the previous ATO view? [1]
The ATO has previously considered that you may claim deductions against your holiday home rental for the periods where it is genuinely available for rent.
Provided you maintained the property as available through commercial booking agents or platforms during the year you may generally claim a deduction based on the time it was available, and you were not using the property for personal use.
Where the property was only rented on a non-commercial or ad-hoc basis during the year, the ATO generally had a practice of allowing a deduction up to the amount of the rental income received.
What is the new ATO view? [2]
The new ATO view is that, where the holiday home is not ‘mainly’ held for the purposes of earning rental income, most of your property costs will now be non-deductible. Direct costs of the rental activities, such as advertising and cleaning may continue to be deductible.
As example of this change in treatment is below:
Mary owns a holiday home on the South Coast which is listed during the year on a commercial rental platform.
Mary usually uses the house for family holidays for a couple of weeks in the new year and over Easter each year.
Mary’s siblings also use it rent free for a week or so in December and it is available for the remainder of the year.
Due to the market demand, the premium rates and other restrictions Mary places on the property it is only rented for three weeks during the year.
The ATO’s alternative tax treatments of Mary’s property is set out in the following table:
| Old ATO Position: Genuinely Available for Rent $ | Old ATO Position: Not Genuinely Available for Rent (Non-Commercial) $ | ATO New Position | |
|---|---|---|---|
| Rental Income | 10,000 | 10,000 | 10,000 |
| Agent Fees | (500) | (500) | (500) |
| Tenant Cleaning | (600) | (600) | (600) |
| General Maintenance | (4,000) | (4,000) | - |
| Loan Interest | (50,000) | (50,000) | - |
| Insurance | (2,500) | (2,500) | - |
| Depreciation | (5,00) | (5,00) | - |
| Private Use Adjustment | 5,000 | 52,600 | - |
| Taxable Net Profit (Loss) | (47.600) | - | 8,900 |
| Tax Benefit / (Loss) | 22,372 | - | (4,183) |
This example shows that under the previous ATO non-commercial rental position, there would have been no tax benefit or payable from the holiday home ownership.
However, under the new ATO view, where Mary cannot show that she holds the property mainly for earning rental income she will now have an additional $4,183 in tax to pay from her holiday home rental.
What do you need to do?
The ATO is only applying this new view from 1 July 2026. The ATO will not apply compliance resources to rental properties owned prior to 1 July 2026 if the rental expenses are incurred under an arrangement entered into prior to 12 November 2025.
Where you are seeking to maintain the position that your property is mainly held for the purpose of rental, you will need to consider how you make the property available to the public, the restrictions you place on the rental and the times it is unavailable due to private use. The ATO has released a risk rating scale for this purpose. [3]
Your Bentleys advisor can help you assess the risk of your arrangement and help you put in place arrangements which satisfy the ATO requirements.
You can also provide us with your comments to feed into an ATO submission before 30 January 2026.
References
[1] Taxation Ruling IT2167 (withdrawn) Income Tax: rental properties – non-economic rental, holiday home, share of residence, etc. cases, family trust cases (4 July 1985)
[2] Draft Taxation Ruling TR2025/D1 Income Tax: rental property income and deductions for individuals who are not in business (30 January 2026)
[3] Draft Practical Compliance Guideline PCG2025/D7
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