Newsletter; Costs relating to holiday homes no longer deductible
On 20 May 2026, the Australian Taxation Office (ATO) finalised its guidance on rental properties that also double as a holiday home. Taxation Ruling TR 2026/1 and two practical compliance guidelines (PCG 2026/2 and PCG 2026/3).
The ATO has moved away from the requirement for the property to be “genuinely available for rent” to “mainly used to derive income”.
From 1 July 2026, costs relating to a property that is used for holidays or recreation are no longer deductible (even where the property has been rented). There is an exemption for holiday homes “mainly used to derive rent” where the non-deductibility rules will not apply.
There are three factors used to determine “mainly used to derive rent”:
- the way that a holiday home is actually used during the year;
- the time that a holiday home is dedicated to rental use;
- the pattern of use of a holiday home, any periods ta holiday home is used for private purposes and the extent that a holiday home is used during peak periods (it cannot be blocked out for private use).
| A property will be in the low risk zone where there is: - attempts to maximise rental income; - rent on commercial terms; - high levels of income-producing occupancy; - limited personal use. | A property will be in the high risk zone where there is: - limited attempts to rent out the property on commercial terms (including restrictions); - no or limited attempts to increase the income-producing occupancy of the property; - periods where the property is blocked out for personal use. |
Costs denied as a deduction may form part of the cost base of the asset to reduce the eventual capital gain.
