If you own a holiday home that is also rented out, it is important to understand how the tax rules apply. The ATO has released updated guidance for rental properties and holiday homes, with a particular focus on properties used for both private purposes and short-term rental, including those listed on platforms such as Airbnb, Stayz or Booking.com.

This does not mean you cannot claim deductions for a holiday home. However, the way the property is used, advertised and made available for rent can affect what you are able to claim.

Key points

If you own a holiday home and rent it out, some key points to keep in mind are:

• the ATO is focusing on whether the property is mainly used to earn rental income
• this may be a significant move away from simply apportioning expenses between rental use and private use
• if the property is not mainly used to earn rental income, some ownership and use costs may be denied and not deductible
• this can include mortgage interest, council rates, land tax, building insurance, repairs and maintenance
• private use by you, your family or friends can affect what you can claim
• availability during peak holiday periods may be important
• simply listing the property online may not be enough
• good records are important to support your claim

The ATO’s updated approach

In the past, many holiday home owners may have understood the rules to mean that expenses simply needed to be reduced or apportioned where there was private use.

For example, if a property was rented out for part of the year and used privately for part of the year, the owner may have expected to claim a percentage of expenses based on the rental use.

The ATO’s updated guidance means this may not always be the right approach.

For holiday homes, the issue may no longer be just about apportioning expenses. If the property is not mainly used to earn rental income, deductions for ownership and use of the property may be denied.

This can include significant costs such as:

• mortgage interest
• council rates
• land tax
• building insurance
• repairs and maintenance

This means that even if the property is rented out during the year, these expenses may not be deductible if the overall use of the property is mainly private or recreational.

For more detailed guidance, you can refer to the ATO’s official publications: Tax Ruling TR 2026/1 and ATO’s Practical Compliance Guidelines.

Why private use matters

A holiday home is often different from a standard rental property.

For example, you may rent it out to paying guests during the year, but also use it yourself or allow family and friends to stay there.

Where there is private use, the ATO may look at whether the property is genuinely being used mainly to earn rental income.

This can include looking at how often the property is rented, when it is available for rent, and whether it is also being held for the owner’s private holidays or recreation.

If private use is a significant part of the arrangement, some deductions may be denied rather than simply reduced.

Peak holiday periods are important

One practical issue for holiday home owners is how the property is used during high-demand periods.

For example, if a beach house is regularly blocked out for private use during Christmas, New Year, Easter or school holidays, this may affect whether the property is treated as mainly used to earn rental income.

This is because those periods are often the times when the property is most likely to attract rental demand.

If a property is mostly available during quieter periods but kept for private use during peak holiday periods, the ATO may look more closely at the arrangement.

Simply listing the property may not be enough

A common misunderstanding is that a property is automatically treated as available for rent just because it is listed online.

That may not always be the case.

The ATO may look at whether the property is genuinely available for rent on commercial terms. This can include whether the property is properly advertised, whether the rental price is reasonable, and whether booking requests are being actively monitored.

If strict conditions make the property difficult to rent, or if booking requests are refused without a clear reason, this may affect the deductions that can be claimed.

What expenses may still be deductible?

Not all expenses are treated the same way.

If a holiday home is affected by the ATO’s updated approach, deductions for ownership and use of the property may be denied. This can include costs such as interest, rates, insurance, land tax, repairs and maintenance.

However, expenses that relate directly to earning rental income may still be deductible under the normal rules. This may include:

• online platform fees
• real estate agent fees
• advertising costs
• cleaning costs after guests stay
• laundry costs for guest use

The treatment will depend on the facts and circumstances of each property.

Transitional approach

The ATO has indicated that it will generally take a transitional compliance approach for some earlier arrangements.

However, holiday home owners should still review their position going forward, particularly from 1 July 2026.

If you own a holiday home that is also rented out, it is worth checking how the property is being used, especially where there is a mix of rental use and private use.

What should you do now?

If you own a holiday home that is also rented out, it is worth reviewing how the property is used before preparing your tax return.

The key point is not to assume that the same deductions can be claimed each year without checking the facts.

You should consider whether the property is genuinely being used mainly to earn rental income, or whether private use is a significant part of the arrangement.

If your property has a mix of rental and private use, we recommend keeping clear records and seeking advice before finalising your claim.

Holiday homes can still provide rental income and may still allow for tax deductions in the right circumstances. However, the ATO’s updated guidance means private use, peak period availability and record keeping are important areas to review. If the property is not mainly used to earn rental income, some ownership costs may not be deductible at all. As always, feel free to contact our office if you have any questions about your holiday home or the deductions you may be able to claim.