If you own a holiday home—or use one partly as a rental and partly for personal enjoyment—the ATO has made it clear that the rules around claiming deductions are tightening.
Recent guidance and a new draft ruling (TR 2025/D1) signal a stronger compliance focus on mixed-use properties, especially where owners claim significant deductions despite limited rental activity.
For many years, owners have been able to claim a wide range of expenses, such as interest, rates, insurance, and maintenance, even when the property wasn’t rented consistently.
The ATO is now challenging that approach. Under the updated framework, deductions may be reduced or denied altogether unless the property is genuinely used – and primarily used – to earn rental income.
Key Areas of ATO Scrutiny
The ATO is looking closely at several indicators to determine whether a holiday home is a legitimate rental investment:
Availability during peak periods – If the property is blocked out during holidays, long weekends or school breaks for personal use, it may not be considered genuinely available for rent.
Market-based pricing – Charging above-market rates or imposing restrictive conditions (such as long minimum stays, “no children”, or highly selective booking acceptance) can suggest the property is not truly intended for rental.
Balance of personal vs rental use – If personal use outweighs rental days, deductions may be limited.
Consistency of advertising – Properties must be actively and widely promoted, not just listed casually or for short periods.
High deductions with low rental activity – The ATO is specifically targeting situations where owners claim large annual deductions -sometimes around $20,000 – despite sparse bookings.
Data-matching and AI tools – The ATO is increasingly using technology to identify discrepancies in rental income, booking patterns, and occupancy levels.
What This Means for Holiday Home Owners
If your property is used for both rental and personal purposes, you may need to reconsider how you structure its availability, pricing and individual usage.
Proper record-keeping is more critical than ever. Logs of rental days, private-use days, enquiries, bookings, expenses and advertising will all form part of how the ATO assesses compliance under the new approach.
However, as the ATO had not previously published these views, during this transitional period, it will not take action to review expenses incurred before 1 July 2026, so long as the expense arrangement (e.g., mortgage interest or a repair or maintenance agreement) existed prior to 12 November 2025.
Your Holiday Home Compliance Checklist
Use this quick checklist to stay aligned with expectations:
Rental Availability
Is the home available during high-demand seasons?
Are restrictions reasonable and typical for your area?
Is the property advertised consistently and widely?
Pricing & Bookings
Are your rates comparable to similar properties?
Do you maintain records of all booking enquiries?
Do you accept legitimate bookings where possible?
Private Use
Have you clearly logged all personal-use days?
Does private use outweigh income-producing use?
Record Keeping & Expenses
Are expenses correctly apportioned between private and rental use?
Do you keep invoices, receipts and calculations?
Are you aware that ownership costs can be denied if rental use isn’t the primary purpose?
As scrutiny increases, now is the time for holiday-home owners to revisit their rental practices and ensure their deduction claims accurately reflect how the property is used.
A proactive review with your accountant can help confirm compliance and avoid unexpected issues at tax time. Why not start a conversation with us to find out how we can assist you with your compliance obligations?
IMPORTANT NOTICE
This blog post contains general information only and has been prepared by Allworths without reference to your objectives, financial situation or needs. Allworths cannot guarantee the accuracy, completeness or timeliness of the information contained here. By making this information available to you, we are not providing professional advice or recommendations. Before acting on any of the information contained here, you should seek professional advice.
