Many Australians own holiday homes that are used partly for personal getaways and partly as rental properties. These properties can often qualify for holiday home tax deductions in Australia, allowing owners to claim certain expenses when the property is rented out. However, a new draft tax ruling from the ATO may change how these deductions work in the future. If the proposal goes ahead, holiday homes that are mainly used for personal purposes may no longer qualify for many common tax deductions. With the changes expected to apply from 1 July 2026, holiday home owners may want to start reviewing how their properties are currently used.

What This Means for Holiday Home Owners

If the draft ruling is finalised, holiday home owners may need to be more careful about how their property is used.

Key points to be aware of:

• Holiday homes mainly used for private holidays may lose tax deductions
• Owners may need to show the property is primarily used to earn rental income
• Good record-keeping of rental days and personal use will become even more important
• The proposed changes are expected to apply from 1 July 2026

Because the ruling is still in draft form, the final rules may still change. However, property owners should begin reviewing how their holiday homes are used and whether they are genuinely income-producing assets.

What Is Changing?

The ATO has released a draft ruling called TR 2025/D1, which proposes a stricter approach to holiday home tax deductions.

Under the proposal, if a holiday home is mainly used for private purposes, the property could be treated as a leisure facility.

If this happens, many expenses related to owning the property may no longer be tax deductible, including:

• Mortgage interest

• Council rates

• Insurance

• Maintenance and repairs

• Other ongoing property costs

This would represent a change from the approach many taxpayers have relied on in the past, where expenses were typically split between private use and rental use.

Can You Still Claim Holiday Home Tax Deductions?

Under the current rules, property owners may claim deductions for expenses associated with renting out their holiday home. However, expenses must usually be apportioned between private use and rental use.

The proposed draft ruling may change this approach where the property is mainly used for personal purposes. If the property is considered a leisure facility, many ownership expenses may no longer be deductible.

Because the ruling is still in draft form, the exact application of the rules may still evolve before the final guidance is released.

Why the Accounting Industry Is Concerned

According to reporting by Accountants Daily, Chartered Accountants Australia and New Zealand (CA ANZ) has raised concerns about the draft ruling.

The organisation noted that many tax advisers and property owners have relied on the previous ATO guidance for many years. Because the proposed ruling represents a change in approach, CA ANZ believes there needs to be clear communication and education so taxpayers understand the new rules.

They have also suggested that clearer guidelines could help reduce confusion and compliance costs for holiday home owners.

Existing Rental Property Rules Still Apply

For now, the existing tax rules for rental properties have not changed.

This means property owners should still focus on:

• Correctly splitting expenses between personal and rental use

• Ensuring the property is genuinely available for rent

• Keeping proper records of rental days and private use

If you would like a refresher on how holiday home deductions currently work, you can read our earlier article Making the Most of Your Holiday Home: Tax Deductions & Expenses Claim.

For property owners who rent out part of their home or use short-term rental platforms, our guide Maximising Tax Deductions When Renting Out Your Home also explains how expenses are typically calculated and apportioned.

When Could the Changes Start?

The proposed rules are expected to apply from 1 July 2026 if the ruling is finalised.

This gives property owners time to review how their holiday homes are used and ensure they maintain clear records of rental activity and personal use.

Holiday homes can provide both lifestyle benefits and rental income, but the tax treatment may become stricter in the future. If the proposed ruling is introduced, property owners may need to demonstrate that their holiday home is genuinely being used as an income-producing asset in order to claim deductions. If you own a holiday home or are considering purchasing one, it may be worth reviewing how the property is used and whether the proposed changes could affect you.

Industry commentary referenced in this article was reported by Accountants Daily in February 2026 regarding the draft ruling TR 2025/D1.