ATO Targets Holiday Homes: What You Need to Know
The ATO has released new draft guidance that could change how people with holiday homes claim deductions. These changes may affect anyone who rents out a holiday property, even part-time.
What’s Changing?
The ATO is taking a much tougher approach to holiday homes that are used for both personal holidays and rental income. Under the new rules, some deductions may be denied, even if you earn rental income from the property. This will be unexpected for many holiday-home owners, as the ATO has not taken this position publicly before.
What Deductions Are at Risk?
If the ATO decides that your holiday home is not mainly used to produce income, you may not be able to claim deductions for things like:
- Interest on loans used to buy the property
- Council rates
- Land tax
- Repairs and maintenance
This applies even if the property is rented out during part of the year.
How the ATO Wants Deductions Calculated
If your property is used partly for rental and partly for private use, the ATO now expects expenses to be fairly divided between the two.
They say this can be done in a few ways, such as:
- Dividing by time (days rented vs days used privately)
- Dividing by space (portion of the home used by tenants)
- Or a mix of both
If you use a different method, you’ll need strong evidence that it’s reasonable.
Why This Matters
The ATO is now emphasising a rule that treats some holiday homes as “leisure facilities.” If your property falls into this category and isn’t mainly used to earn income, the ATO can deny major deductions, even if the property is rented at times. This could affect many owners who didn’t realise the rule applied to them.
Transitional Relief
The ATO has recognised that this is a new interpretation, so they won’t review past years straight away. They’ve said they won’t investigate expenses incurred before 1 July 2026, as long as the arrangement existed before 12 November 2025.
This is a draft position recently released by the ATO which is looking to be finalised by end of the financial year. Should you currently have a holiday home, or are thinking about purchasing one, you can discuss any questions or concerns with the team here at SiDCOR on 1300 743 267 who can help you navigate the proposed new tax landscape for these types of assets.