Holiday Homes Are Now in the ATO’s Sights — What Property Owners Need to Know

If you own a holiday home that you also rent out, the tax rules that have applied for decades are changing. In November 2025, the Australian Taxation Office released new draft guidance that significantly tightens the way deductions are treated for these properties — and from 1 July 2026, that guidance applies to all existing arrangements.

For property owners in coastal areas and holiday destinations, including many parts of the Gold Coast and surrounding regions, this is a significant development that warrants careful attention.

What Has Changed

The ATO’s new position, set out in Draft Taxation Ruling TR 2025/D1, introduces the concept of a ‘leisure facility’ and applies it to certain holiday homes. Under this ruling, if a property is considered to be mainly used for personal holidays or recreation rather than income production, it will be classified as a leisure facility under section 26-50 of the Income Tax Assessment Act 1997.

The consequence of that classification is significant: deductions for property holding costs, including mortgage interest, council rates, land tax, insurance and maintenance, will be denied in full.

Importantly, any rental income you do receive is still taxable. So the rental income counts, but the expenses may not, a position that represents a considerable shift from the previous rules.

How the ATO Determines ‘Main Use’

This is where the new ruling is more nuanced and more demanding than the old approach. Previously, deductions were generally reduced based on the number of days the property was available for rent versus used personally. Under the new guidance, the ATO takes a broader view of how the property is used and the intention behind that use.

Factors that will attract ATO attention and may result in a property being classified as a leisure facility include:

• Blocking out peak holiday periods, such as Christmas, Easter, and school holidays, for personal use, even if the property is available for rent at other times
• Advertising the property at rates well above market to deter genuine rental enquiries
• Renting to family or friends at below-market rates
• Making parts of the property inaccessible to guests
• A pattern of use where personal enjoyment is clearly prioritised over rental income generation

Simply listing a property on Airbnb or a short-term rental platform is not sufficient on its own. The ATO will look at actual behaviour and the overall pattern of use.

The Transitional Period

The ATO has confirmed it will not apply compliance resources to reviewing expenses incurred before 1 July 2026, provided those expenses were incurred under an arrangement that existed prior to 12 November 2025. This transitional period is designed to give existing property owners time to review and adjust their arrangements.

However, for new properties or new loan arrangements entered into after 12 November 2025, the new rules apply immediately.

What Property Owners Should Do Now

The transitional period ends on 1 July 2026,  which means now is the time to review your arrangements. Key questions to consider include:

• What proportion of the year is the property genuinely available for rental at market rates?
• Is personal use concentrated around peak periods, and if so, how does that affect the overall picture?
• Are your rental arrangements and record keeping in good enough order to demonstrate that income production is the primary purpose?
• If the property is classified as a leisure facility, what is the financial impact of losing the deductions you currently claim?

For some owners, the answer may be to restructure how the property is managed and marketed. For others, it may prompt a broader reconsideration of whether the property remains the right investment in the current environment.

If you own a holiday home and are unsure how these changes affect your position, we strongly recommend reviewing your arrangements before 1 July 2026. Simmons Livingstone can help you understand where you stand and what options are available. Call 1800 618 800 or email admin@simmonslivingstone.com.au.