If you've got a beach house, a shack in the hills or an apartment you list on Airbnb or Stayz between your own getaways, this one's for you.
In May 2026 the ATO released new guidance on how it treats rental property income and deductions. Most of it confirms what long-term landlords already know. But there's one big change for anyone whose rental property is also a holiday home, and it could mean losing the deductions for interest, rates and insurance altogether.
Here's what's changed, who it affects and what you can do about it.
What the ATO has released
On 20 May 2026 the ATO published three pieces of guidance:
• TR 2026/1 – a new taxation ruling on rental property income and deductions for individuals who aren't in business. It replaces IT 2167, the ATO's long-standing rental property ruling.
• PCG 2026/2 – a practical compliance guideline on how to apportion (split) rental deductions when a property is used partly to earn rent and partly for private use.
• PCG 2026/3 – a practical compliance guideline on how the ATO will apply the 'leisure facility' rules in the tax law to holiday homes that are also rented out.
The guidance covers both long-term rentals and the short-term market, including renting out a room in your home, or a whole house or holiday home through a booking platform.
What counts as a 'holiday home'?
The ATO treats a property as a holiday home if it's used, or held for use, for your holidays or recreation, or for the holidays or recreation of family and friends who stay for free or at a reduced rate.
That's the key point: it's not just about the nights you actually stay there. If you keep the property available for yourself or your family, it can still be a holiday home.
A property you never use or reserve for your own holidays, and that you rent at market rates and actively manage, isn't a holiday home. The usual rental rules apply.
The big question: is it mainly used to earn rent?
Under the new guidance, if your rental property is a holiday home, you can only claim ownership and use expenses if the property is used, or held for use, mainly to produce rental income. 'Mainly' means chiefly or for the most part.
The ATO will look at the full picture, including:
• how the property is actually used
• how much time it's dedicated to earning rent
• how much time you, your family or friends use it, or have it held aside for possible use
• whether it's available to rent at the times people actually want it, like school holidays, public holidays and peak season.
No single factor decides it. Simply counting rented days against your own days won't settle it, and what you intended to do with the property isn't relevant. It's about what actually happens.
Timing matters as much as totals. The ATO says a property advertised for more than half the year can still fail the test if it isn't available when people actually want it. Peak season depends on where the property is: summer on the coast, winter near the snow, or major events for a city apartment.
If it's not mainly a rental: what you lose
If your holiday home isn't mainly used to earn rent, you still have to declare all the rent you receive, but you can't claim ownership and use expenses. These include:
• interest on the loan used to buy the property
• borrowing expenses
• council and water rates
• body corporate fees
• land tax
• insurance
• repairs and maintenance
• capital works and depreciation.
You can still claim costs that relate purely to renting it out, like booking platform fees and commissions, advertising, and cleaning after a guest's stay.
One small consolation: costs denied under these rules may be able to be included in the property's cost base for capital gains tax when you sell.
What this looks like in practice: One of the ATO's own examples involves an owner who blocks out every Sunday for himself, places restrictions that put guests off, and only rents the property out five or six times a year. He has to declare around $5,400 in rent, but can only claim his platform commission and guest cleaning costs. Over $60,000 in interest, rates and insurance is denied.
Common warning signs include:
• blocking out Christmas, Easter or school holidays for family use (even if you don't end up going)
• knocking back bookings or being very selective about guests
• restrictions that make the property less appealing to rent
• letting family and friends stay free or cheaply during peak times.
If it is mainly a rental: you can claim, but you need to apportion
If you genuinely run the property as a rental and your own use is minor, you can still claim your expenses. For example, a week or a few weekends in the off-season when there were no bookings, or little chance of one.
You'll need to apportion your expenses so you're not claiming for the time you used it yourself:
• Fully deductible: costs that relate only to renting, like booking fees, commissions, advertising and cleaning after guests.
• Apportioned: general costs like interest, rates and insurance, reduced to exclude your private use.
• Not deductible at all: costs from your own stays, such as cleaning after your family's holiday, or fixing damage you caused.
Example from the ATO: A Barossa Valley owner advertises year-round, responds promptly, keeps rent in line with similar properties, and uses the house for one week a year. She can claim her platform fees and cleaning in full, and 51/52nds of her other expenses.
Green, amber or red: how the ATO will rate your property
The ATO has published a traffic-light system (in PCG 2026/3) for deciding which holiday homes it looks at. It considers how the property has been used across your whole period of ownership, not just one year, and no single factor decides your zone.
Zone
What it typically looks like
What the ATO says it will do
Green (low risk)
High occupancy, especially in school holidays, public holidays and peak season; limited personal use; commercial rental terms; a genuine effort to maximise income
Won't apply compliance resources, other than to confirm your situation fits the green zone
Amber (medium risk)
More personal use by you, family or friends; passing up bookings so the property stays free for you; using or holding it during peak times; limited effort to rent it
May apply compliance resources to review it
Red (high risk)
Blocking out peak periods for yourself every year; little effort to rent; major features locked away from guests; unreasonable restrictions; pricing above market
Treated as a priority for review, which may lead to an audit
A local example from the ATO: A retired couple own a Glenelg property that was a long-term rental for years. They switch it to short-term letting so they can use it on weekends and holidays. They rarely answer enquiries and cancel guest bookings when they want to stay. The ATO puts this in the red zone, so their ownership deductions are denied.
Things can change
Your main use can shift over time. If you've been using the property mostly for family holidays but then make a definite, sustained change (for example, you move overseas, stop blocking out dates and let your agent market it all year) you can start claiming from the date of that change.
A one-off rental, or the normal seasonal pattern (like a ski lodge going quiet after the snow season), isn't a change in main use.
Not a holiday home? Apportionment still applies
The new guidance isn't only about holiday homes. PCG 2026/2 sets out how the ATO expects landlords to split expenses when a property isn't used purely to earn rent. If you follow its methods and keep records to back them up, the ATO says it won't have cause to look into your claim.
• Costs that relate only to renting (agent fees, platform commissions, advertising, cleaning and laundry after guests) are claimed in full.
• Time-based method: general costs are claimed in proportion to the days the property was rented, plus days it sat empty but was genuinely available on commercial terms, out of the days you owned it that year.
• 'Genuinely available' means broad advertising, rent in line with similar properties, and enquiries actively followed up. Word-of-mouth only, unreasonable conditions or above-market rent don't count.
• Renting a room in your own home: days the room sits empty count as zero, even if it's advertised.
• Area-based method: if you rent out part of the property, claim by floor area, with shared spaces like the kitchen and living areas counted at half.
• Renting to family or friends below market rent: you still declare the rent, and the ATO will accept deductions capped at the rent received, so there's no tax loss.
• Renting to family at market rent: no apportionment is needed, but keep evidence of how the rent was set, such as a rental appraisal.
Example from the ATO: Gail and Craig stay in their rental property for 30 days of the year. They claim their agent and advertising costs in full, plus 335/365ths of their $34,801 in other costs, which is $31,940.
When does this start?
This is the good news for now. Because applying the leisure facility rules to holiday homes is a new position for the ATO, it has said it won't devote compliance resources to reviewing those rules for holiday home expenses incurred before 1 July 2026.
In practical terms, that means the 2026–27 financial year is the first where this really bites. Now is the time to look at how your property is being used, not after 30 June 2027.
A couple of things to keep in mind:
• The guidance applies to individuals who aren't carrying on a business. If your property is held in a trust or company, the position may be different.
• The relief only means the ATO won't go looking. If you ask the ATO to amend an earlier year's assessment, or apply for a private ruling, it will apply its new view. The relief also doesn't apply where there's avoidance, fraud or evasion.
What should you do now?
1. Be honest about how you use the property. Is it a holiday home that you rent out sometimes, or a rental you occasionally stay in?
2. Review your booking calendar. If you're blocking out peak periods for family, that's a red flag.
3. Check your pricing and restrictions. Rent should be in line with comparable properties, and you shouldn't be turning away reasonable bookings.
4. Keep good records. Track rental days, private days, blocked-out dates, enquiries and bookings declined. You'll need them to back up any apportionment.
5. Speak to us before you lock in your plans for the year. Small changes to how you manage the property could make a real difference to what you can claim.
How we can help
Every property is different, and this is an area where the ATO is clearly paying close attention. If you own a property that you also use for holidays, get in touch with the Katalyst Accounting team. We'll look at how your property is used, work out where you stand, and help you get your claims right.
This article contains general information only and doesn't take into account your personal circumstances. Please seek advice before acting on it. Information is based on ATO guidance published in May 2026.
Sources: ATO – New guidance for rental property owners; ATO – Holiday homes; TR 2026/1; PCG 2026/2; PCG 2026/3If you've got a beach house, a shack in the hills or an apartment you list on Airbnb or Stayz between your own getaways, this one's for you.
In May 2026 the ATO released new guidance on how it treats rental property income and deductions. Most of it confirms what long-term landlords already know. But there's one big change for anyone whose rental property is also a holiday home, and it could mean losing the deductions for interest, rates and insurance altogether.
Here's what's changed, who it affects and what you can do about it.