If you own a holiday home or a short-stay rental (through Airbnb, Stayz or similar), the ATO is taking a tougher line from 1 July 2026 on what you can claim. The key question it is asking is whether the property is mainly used to produce rental income or mainly kept for private use. Where the ATO decides it is mainly private, major holding costs like loan interest and council rates can be denied outright, not just reduced. Here is what has changed and how to stay on the right side of it.
What has changed for Holiday Home Tax Deductions?
The underlying rules are not new, but the ATO has signalled a more active compliance approach from 1 July 2026, aimed at holiday homes and short-stay rentals that are really lifestyle assets rather than genuine investments. The test it applies comes down to purpose: is the property mainly held to earn rental income, or mainly for your own private use and enjoyment?
What you can and cannot claim
The distinction matters a lot for your deductions:
- Where a property is genuinely income-producing and available for rent, you can claim the usual costs, apportioned for any private use.
- Where the ATO considers it mainly private, major holding costs can be denied, including interest on the loan, council rates and land tax, insurance, and some repairs and depreciation.
- Expenses directly connected to actually letting the property, such as advertising, platform commissions and cleaning between guests, generally remain claimable.
The traps that catch owners out
A few patterns tend to push a property toward being treated as mainly private:
- Reserving the best periods, such as Christmas and school holidays, for your own use, even if you rent it out off-peak.
- Advertising at above-market rates, or with conditions that effectively deter bookings, which suggests it is not genuinely available for rent.
- Claiming a full year of costs when the property was only genuinely available to rent for part of the year.
What to do
Keep clear records of when the property was genuinely available for rent and actually let, versus when it was used privately, and claim only the income-producing portion. If your holiday home is honestly more for family use than investment, be realistic about what you claim, because this is exactly the area the ATO is now reviewing. We can help you work out the right apportionment and keep records that will stand up.
How MS Financial Services can help
We help property owners claim correctly on holiday homes and short-stay rentals, and keep the records the ATO expects. See our Tax & Compliance service or get in touch.
Frequently Asked Questions
Can I claim all the costs on my holiday home?
Only if it is genuinely income-producing and available for rent, and then only the income-producing portion after apportioning for any private use.
What changed from 1 July 2026?
The ATO began a more active compliance approach, focusing on holiday homes and short-stay rentals that are mainly held for private use rather than to earn income.
What can I not claim if it is mainly private?
Major holding costs such as loan interest, council rates, land tax, insurance and some repairs and depreciation can be denied where the property is treated as mainly private.
Can I still claim advertising and cleaning?
Yes. Expenses directly tied to letting the property, such as advertising, platform commissions and cleaning between guests, generally remain claimable.
How do I avoid problems?
Keep records of when the property was genuinely available and actually rented versus used privately, and claim only the income-producing share.