iscover ATO sets sights on holiday homes used as rentals
RegulationThe ATO is expected to pay close attention to deductions claimed for rental properties that are also used as holiday homes this tax time, following recent draft guidance, the NTAA has warned.
Deductions for holiday homes that are also available for short-term rentals are likely to be on the ATO's radar for tax time this year, particularly those that are not held for the primary purpose of earning rental income, according to the National Tax and Accountants’ Association (NTAA).
James Deliyannis, NTAA spokesperson, said that in recent years, there have been growing concerns about individuals incorrectly claiming deductions for holiday homes that are also made available for rent to short-term holidaymakers through online accommodation platforms.
Of particular concern have been deductions claimed for holiday homes in the following situations:
- Where a property is vacant and listed for rental, but the owner imposes unreasonable rental conditions. For example, charging excessive rent or requiring applicants to provide references for short stays or refusing to follow up on enquiries from interested holidaymakers.
- Where a property is listed for rental during off-peak periods but used by its owners during peak periods, such as during the December/January school holidays and Easter.
In light of these concerns, the ATO released TR 2025/D1 and PCG 2025/D7, which outline an entirely new and unexpected change of ATO approach on how to mitigate incorrect claims for holiday homes that are also used for short-term rental.
“The ATO’s draft guidance makes it clear that if a holiday home is not mainly used for rental during the year, expenses that relate to the ownership and use of the property will not be deductible because of S.26-50 of the ITAA 1997, even where the property is actually rented to holidaymakers during the year,” Deliyannis said.
”For this purpose, non-deductible expenses include mortgage interest, council rates, building insurance, land tax, and repairs and maintenance.”
Deliyannis said S.26-50 denies a deduction for a loss or outgoing that relates to the ownership, the use, and the maintenance or repair of a leisure facility.
”For this purpose, a ‘leisure facility’ is defined as being ‘land, a building, or part of a building or other structure, that is used (or held for use) for holidays or recreation’,” he said.
”This means that a leisure facility includes a holiday home, being a property that is used at any time by its owner(s) for holidays or recreation.”
Based on the ATO’s guidance in TR 2025/D1 and PCG 2025/D7, Deliyannis said S.26-50 is more likely to apply to those holiday homes which are blocked out or reserved for use by their owners during most or all of the peak periods.
”These are the types of holiday homes that are more likely to attract the ATO’s audit attention,” he said.
Deliyannis is a senior taxation manager at Corporate Seminars Australia, working on behalf of the National Tax & Accountants’ Association (NTAA). James will be presenting the NTAA’s 2026 Day 1 Tax Schools seminar in May and June, dealing with the most current developments affecting individual taxpayers and the 2026 individual tax return.
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Miranda Brownlee
Miranda Brownlee is the editor of Accountants Daily and Accounting Times, the leading sources of news, insight, and educational content for professionals in the accounting sector.
Miranda has over a decade of experience reporting on the financial services and accounting sectors, working on a range of publications including SMSF Adviser, Investor Daily and ifa.
