The Australian Taxation Office (ATO) has released draft guidance that could significantly change how holiday home owners claim tax deductions. From 1 July 2026, deductions for expenses such as mortgage interest, council rates, and insurance may be denied if a property is considered “mainly” for personal use rather than genuinely available for rent.
Historically, the ATO allowed owners to claim deductions as long as the property was legitimately available for rent, even if it wasn’t actually tenanted. Under the new draft guidance, a holiday home may lose deductible status if it is not available for rent during “peak periods” such as Christmas, Easter, school holidays, or other high-demand times.
Owners who reserve their properties for personal use during these periods may see various deductions denied. Only costs directly related to producing rental income, such as advertising, cleaning, or property management, are likely to remain deductible.
Around 250,000 properties across Australia are rented as short-stay or holiday accommodation, many of which are negatively geared. The ATO’s guidance aims to ensure deductions reflect genuine income-producing activity rather than subsidising personal use. Owners will need to keep detailed records, including rental income, booking calendars, advertising, and dates of personal use, to support any claims.
While the guidance is still in draft form and open for consultation until 30 January 2026, owners should start assessing their properties, including availability to rent and personal use during peak periods, now to protect tax positions. If you own a holiday or rental property, contact us today to review your rental arrangements and prepare for these proposed changes. Our expert advisers can help you maximise compliance and safeguard your tax deductions before the new rules may take effect.