New Rental Property Rules Are Now in Effect — What Every Property Owner Needs to Know

If you own a rental property — especially one that doubles as a holiday home or is listed on a platform like Airbnb or Stayz — there are important new rules you need to be across before you lodge your 2025-26 tax return. The Australian Taxation Office has released a new ruling, TR 2026/1, which took full effect from 1 July 2026 and changes what property owners can and cannot claim.

What TR 2026/1 covers

The new ruling sets out how the ATO now treats deductions for individuals who earn income from rental properties, including those in the short-term rental market. It covers holiday homes rented through online platforms as well as properties let on a longer-term basis. The central question is whether your property is genuinely being held to produce income — and the answer turns not just on how many days you use it yourself, but on how you use it and which periods you keep for yourself

Holiday homes: the restriction that now applies in full

For holiday home owners, the ruling brings a long-standing but under-enforced restriction firmly into play. Where a property is not genuinely held to earn assessable income — because you use it privately, keep it available for family and friends, or reserve it for yourself at key times — your ability to claim ownership costs is cut back. In those circumstances, only expenses directly linked to producing income remain deductible: advertising, cleaning charged after a guest’s stay, and booking platform commissions. It does not extend to mortgage interest, council rates, insurance, or depreciation for any period the property is treated as being for private use.

The ATO offered transitional relief for expenses incurred before 1 July 2026, indicating it would not devote compliance resources to these cases before that date. That transitional period has now ended, and the relief only applied to properties already held as at 11 November 2025

The peak-period trap

Here is where many owners come unstuck. It is easy to assume that if you block out only a couple of weeks for yourself — say Christmas and Easter — you simply lose the deductions for those few weeks and keep the rest. That is not how it works, and it can be an expensive misunderstanding.

Christmas, Easter and the school holidays are exactly when a holiday property earns the bulk of its rental income. When you reserve those peak periods for your own use, two things happen. First, every day you set aside for yourself counts as private use — whether or not you actually stay there — so those days cannot also be counted as genuinely available for rent. Second, and more seriously, reserving the most lettable, highest-earning weeks of the year is precisely the pattern the ATO reads as a sign that the property is not genuinely being held to produce income. Once that conclusion is reached, the restriction can apply across the whole year, not just the weeks you blocked out.

The practical result is that owners who keep the “cream” of the letting calendar for themselves can lose a far greater share of their deductions than the handful of reserved weeks would suggest — in some cases, most of the ownership costs for the year.

Mixed-use properties: apportionment done properly

If your property is genuinely held to produce income and your private use is limited and outside peak demand, deductions remain available — but they must be apportioned. You can claim only the portion of expenses that relates to genuine income-producing use, and a fair method has to reflect the periods reserved for private use, not just the nights you physically occupy the property. The ATO’s practical compliance guideline, PCG 2026/3, sets out how to arrive at a defensible apportionment. Getting this right matters, because rental deductions are a priority compliance area for 2025-26.

What good records look like

To support your claim you will need to show the property was genuinely available for rent and genuinely held to earn income. Useful records include booking platform data showing occupancy and availability, advertising listings, rental agreements, receipts for deductible expenses, and a log of any private use — including periods reserved for yourself, family or friends. If your records are incomplete, reconstruct them as thoroughly as you can before lodging. Unsupported claims are more likely to attract attention.

What to do before you lodge

Before you file your 2025-26 return, review your records for the year. Look closely at when you used the property or reserved it for yourself, whether it was genuinely available for rent across the year, and which expenses relate directly to earning income. Pay particular attention to any peak periods you held back — these carry the most weight in deciding what you can claim.

Rental property deductions are one of the ATO’s highest focus areas this tax season. If you own a rental or holiday property and want to make sure your claim is both accurate and as complete as possible, get in touch with us before you lodge — we can review your records and help you get it right.