If you own a holiday home that you use some of the time and rent out at other times, the way you claim deductions may need to change. In May 2026 the ATO finalised new guidance that treats many holiday homes as “leisure facilities”. In tax terms, that’s a property used mainly for holidays, recreation or entertainment rather than to earn income. For some owners, that means losing deductions for big costs like interest, rates and insurance.
Keep declaring the rent
Rent you receive is assessable income, whether it comes through a booking platform, an agent or a direct booking. That can include rent from family or friends, even if you charge them less than market rates.
Understand the leisure facility rule
A long-standing tax rule stops you claiming the costs of owning and running a leisure facility. The ATO now says a holiday home you also rent out can fall into this group.
However, if the property is used or held mainly to earn rent, the rule doesn’t apply. The ATO won’t just count the days it was advertised. It looks at the whole picture, including:
- how much the property was used privately compared with paying guests
- whether you charged commercial rent
- how hard you tried to get bookings
- what happened in peak periods like Christmas and school holidays.
The property must be genuinely available for rent. Listing it online isn’t enough. An unrealistic nightly rate, strict guest restrictions or turning down bookings can all count against you. If you block out summer for your family and only rent the property over winter, you may struggle to show it’s mainly used to earn rent. If you can’t show that, the rule applies and you lose many deductions.
Know what you can still claim
Even if the rule applies, costs directly linked to earning the rent may still be deductible. These include booking platform and agent commissions, advertising, and cleaning after paying guests.
You could claim those direct costs, but you would get no deduction for interest, rates, insurance or repairs.
Split costs if you pass the test
If your holiday home passes the test and is mainly used to earn rent, you can claim the ownership costs, but only the part that relates to renting it out. You can’t claim the part that covers your own use.
The usual way to work this out is by time, for example the share of the year the property was rented or available to rent. Sometimes floor area is used too, for example where part of the property is kept for your own use.
Say your interest bill is $30,000 a year and you rent the property out for 100 days. Before working out any split, check whether the property is mainly used to earn rent. If it isn’t, you can’t claim any of the interest.
Keep records of how you use the property
In the past, a holiday home tax return mostly needed total rent, expenses and the number of days of private use. That’s no longer enough. To show the property is mainly used to earn rent, you need evidence of how it was actually run as a rental, not only how many days it was booked.
Useful records include:
- your booking calendar and any dates you blocked out
- when you, family or friends stayed
- your advertised rates and what similar properties charge
- booking enquiries you accepted or turned down
- any restrictions you put on guests
- evidence the property was available in peak periods.
Reminder
Talk to us about how the new rules apply to your holiday home before you lock in this summer’s plans.
