Holiday home owners, listen up!
Recent ATO draft rulings and updated guidance have put holiday homes firmly in the spotlight.
While holiday homes can be great as a personal retreat and an opportunity to generate some rental income, you have to be mindful of the ATO’s new focus.
Compliance regulations have sharpened, particularly for properties that are used partly for private purposes and partly to produce income.
So, if you own a holiday home that you occasionally rent out, here’s what you need to know.
A New Focus On Holiday Homes
The ATO have released updated draft guidance that could impact you if you own a holiday home. Guideline TR2025/D1 and PCG 2025/D6 are focused on properties that have mixed usage. Holiday homes can easily fall into this category if they are sometimes used for private accommodation purposes and sometimes rented out.
While the law itself hasn’t necessarily changed, the ATO’s interpretation and compliance approach has become clearer and stricter.
The key message in all of this is that holiday home owners can only claim deductions based on the genuine use of the property to produce assessable income. In some cases, deductions may be denied altogether.
Let’s take a closer look at what that looks like in a practical sense:
1: Is Your Holiday Home Used To Generate Income?
If you own a holiday home, but don’t rent it out, then you can’t include anything related to the property on your tax return until you sell it. At that point, capital gains or loss would be calculated. This scenario is not impacted by the new ATO guidance.
2: Is Your Holiday Home Solely Rented Out?
If you do not use your holiday home for any private use and the property is solely rented out, then you continue to claim expenses and rental income in your tax return. This scenario is also not impacted by the new ATO guidance.
3: The Proportion Of Private Use Now Matters
If your holiday home is used for personal stays, then you must be clear on how your expenses are apportioned. Even if you only use it occasionally for personal use, you need to clearly document your expenses so they detail the difference between income-producing use and private use.
The ATO will accept the following methods for apportioning costs:
- Time-based (the proportion of the year that the home is used to generate rental income)
- Area-based (the area of the home that is used to generate rental income)
- A combination of both methods
If the property is genuinely not available for rent on certain days, then they will generally be treated as private use days.
4: Is The Property Genuinely Available For Rent?
In order to claim deductions, your property must genuinely be available for rent during the time period you are claiming for. The ATO will want to know whether:
- The property is advertised publicly
- The rental rate is commercial and comparable
- It is available during peak periods
- You are not selectively choosing tenants
- There are unreasonable restrictions
If a property is only listed sporadically, priced above market, or primarily reserved for personal use, the ATO has the discretion to limit or deny deductions.
5: Is The Property Considered A “Leisure Facility”?
If your holiday home is mainly used for recreational purposes (ie. not income-producing purposes), then it may be determined a “leisure facility” by the ATO. If that happens, then you may not be able to claim for any expenses, even if the property earns some rental income.
This is a major shift in emphasis and has surprised many property owners who assumed partial rental use would automatically allow deductions.
The ATO has indicated it will not review past arrangements entered into before 12 November 2025 (and expenses incurred before 1 July 2026), but going forward, scrutiny will increase.
What You Need To Do Going Forward
The first thing you need to do is to be mindful of the new guidance areas and how they might impact your holiday home situation. These are the other things to consider.
1: Up to date records are essential
Ensure you are documenting:
- Rental periods
- Private use days
- Advertising evidence
- Rental pricing comparisons
- Income received
- Expenses incurred
2: Common risk areas
The ATO has identified some common risk areas. These include:
- Holiday homes that are rented to family or friends at below-market rates
- Deductions that seem inflated compared to the income earned
- Properties that are only available during off-peak periods
- Excessive claims for repairs that are capital in nature
- Minimal advertising or limited commercial activity
3: Protect your position
If you own a holiday home that is partly rented and partly enjoyed personally, the tax treatment is no longer straightforward. The ATO’s updated guidance makes it clear that the intention and actual use of your property will determine your deductions.
If you are unsure whether your holiday home is structured correctly or whether your claims would stand up to scrutiny, now is the right time to review your position.
You can protect yourself by partnering with experts like the team at Cadenze. We can:
- Analyse your property usage and deductibility position
- Assess whether your usage puts you at risk of being classified as a leisure facility
- Ensure your apportionment methods meet the ATO specifications
- Review your record keeping systems
- Help you plan for tax efficiency going forward
Contact the Cadenze team now for tailored advice and peace of mind about your holiday home.