Holiday Home Tax Deductions: What the ATO is Really Saying (and What it Means for You)
- Future Accounting
- 22 hours ago
- 4 min read
Written by: Melissa Cunliffe (CA)
Holiday home tax deductions are firmly in the ATO’s spotlight, and if you own a beach house, weekender or regional getaway that’s rented out occasionally, this is something you can’t afford to ignore.
The ATO has recently clarified how it views holiday homes that earn rental income, and the message is simple: if your property is mainly for lifestyle purposes, your tax deductions may be limited or denied — even if it’s listed on Airbnb or Stayz.
Many holiday home owners are genuinely surprised by this. After all, the property earns income, so surely the deductions still apply? Unfortunately, under the ATO’s updated approach, that’s not always the case.
Let’s break down what holiday home tax deductions really mean in everyday terms.
Why holiday home tax deductions are under ATO scrutiny
For years, many Australians have owned holiday homes that double as short-term rentals. The ATO’s concern is that some of these properties are used primarily for personal enjoyment, while generating tax losses that reduce the owner’s overall tax bill.
The ATO has now made it clear that the tax system isn’t designed to subsidise private holidays. If a property exists mainly for recreation, it may be treated as a leisure facility, which can severely restrict holiday home tax deductions.
What the ATO means by a holiday home versus a genuine rental
The key question the ATO asks is simple: what is the main purpose of the property?
A holiday home (higher risk)
A property is more likely to be treated as a holiday home where the owners regularly use it for holidays or long weekends, block out peak periods such as Christmas, school holidays or long weekends, rent the property only when they are not using it, or allow friends and family to stay for free or at discounted rates.
In these situations, the ATO may say the property is mainly for leisure, not income.
A genuine rental property (lower risk)
A property is more likely to qualify for holiday home tax deductions where it is available for rent year-round, including peak periods, pricing is realistic and market-based, private use is minimal and incidental, and the owner actively tries to maximise bookings.
The difference isn’t about whether the property is listed online — it’s about how it is actually used.
Practical examples of when holiday home tax deductions are at risk
Example 1: The classic family holiday house
Sarah and Tom own a beach house. They use it every Christmas and Easter, block out several school holiday weeks, and rent it out only when they are not using it.
Even though the house earns income, the ATO would likely view this as a holiday home first and a rental second, putting holiday home tax deductions at serious risk.
Example 2: It’s listed all year… technically
Mark owns a regional getaway and lists it year-round, but all long weekends are blocked, peak prices are set well above market rates, and one bedroom is locked for personal use.
Despite being technically available, the ATO may argue it is not genuinely available for rent, which again limits holiday home tax deductions.
Example 3: A genuinely rented holiday property
Emily owns a coastal unit. She rents it year-round, including peak periods, uses it privately for one week per year, charges family market rent, and actively manages pricing and bookings.
This property clearly exists to earn income, making holiday home tax deductions far easier to defend.
What expenses you can and can’t claim on a holiday home
Where a property is treated as a holiday home rather than a genuine rental, the biggest impact is on ownership costs. These include loan interest, council rates, land tax, insurance, and general repairs and maintenance.
Some direct rental expenses, such as booking platform fees or guest cleaning, may still be deductible. However, the large deductions that usually create tax losses are the ones most at risk.
What the ATO will look at when reviewing holiday home tax deductions
The ATO looks at behaviour, not just numbers. Common red flags include consistently blocking peak periods for private use, low occupancy despite strong local demand, restrictive rules that discourage bookings, unrealistic pricing, and regular free use by friends and family.
If the property would not realistically be rented at the best times, the ATO may question whether holiday home tax deductions should apply at all.
Key dates and why 1 July 2026 matters
The ATO has indicated it will not actively review arrangements before 1 July 2026, provided they were in place before November 2025.
This creates a valuable window for holiday home owners to review how their property is used, adjust rental practices if needed, and ensure holiday home tax deductions are claimed correctly going forward.
What holiday home owners should do now
Holiday home owners should be honest about whether their property is mainly lifestyle or income-driven, review how often peak periods are blocked, clearly track and separate private use, ensure pricing and availability reflect genuine rental intent, and seek professional advice before deductions are challenged.
The bottom line on holiday home tax deductions
Holiday home tax deductions are no longer a grey area the ATO is willing to overlook. If your property is mainly for personal enjoyment, deductions may be limited even if it earns rental income.
If you own a holiday home and are unsure where you stand, now is the time to act. Book an appointment with our team to review your situation, understand your risks, and make sure your holiday home tax deductions are claimed the right way before the ATO comes knocking.
Disclaimer
This article does not constitute financial advice and is for general information only. It does not take into account any individual’s personal objectives, situation or needs, and is not intended as professional advice. Any similarity to an individual’s personal circumstances and the examples provided in this article is purely coincidental. Any person acting upon such information without receiving specific advice, does so entirely at their own risk.
Authorisation under an Australian Financial Services Licence (AFSL) is not required in the provision of this article and the author plus Future Accounting Group Pty Ltd is not acting in its capacity as an Australian Financial Services Licence holder
Liability limited by a scheme approved under professional standards legislation.
