From 1 July 2026, the ATO will introduce significantly stricter rules for claiming tax deductions on holiday homes (including Airbnb and short‑term rentals). These changes focus on whether your property is considered a “leisure facility”. If it is, most tax deductions will be denied, even if you earn rental income.
What is changing?
Historically, you could generally claim deductions based on how many days the property was rented versus used privately. From 1 July 2026, this approach changes.
The ATO will now ask a key question first: is the property mainly used to earn rental income?
- If yes, the standard rental rules apply (deductions allowed, with apportionment).
- If no, property is treated as a “leisure facility” and most deductions are denied.
This represents a shift from a proportional test to a “main purpose” test.
What is a “leisure facility”?
A holiday home will be treated as a leisure facility where it is:
- Used (or held for use) for holidays or recreation by you, your family or friends, and
- Not primarily held to generate rental income.
The intent of these rules is to prevent taxpayers claiming deductions on what is effectively a private holiday asset.
Key factor: availability during “peak periods”
The ATO will focus closely on whether your property is genuinely available for rent, particularly during high‑demand (peak) periods, such as Christmas / New Year, school holidays, Easter or peak ski or summer seasons (depending on location).
If you block out peak periods for personal use, or do not make the property genuinely available during these periods, the ATO is likely to conclude the property is mainly for private use and deny deductions.
Deductions that may be denied
If your property is treated as a leisure facility, the following holding costs are not deductible:
- Mortgage interest
- Council rates
- Land tax
- Insurance
- Repairs and maintenance
- Depreciation (in many cases)
However, direct rental expenses will still generally be deductible, including:
- Advertising and listing fees
- Booking platform commissions (e.g. Airbnb or Stayz)
- Cleaning costs between guests
- Property management fees
Importantly, rental income remains fully taxable, even if deductions are denied.
Example 1 – deductions denied (leisure facility)
John owns a beach house, he uses it over Christmas and school holidays, blocks out peak periods from bookings, and rents it occasionally during the off‑season.
The ATO is likely to view this property as a private holiday home.
The result:
- rental income is taxable, and
- most deductions (interest, rates, etc) are denied.
Example 2 – deductions allowed (investment focus)
Sarah owns a coastal apartment, she lists it year‑round at market rates, keeps it available during peak seasons, and uses it privately for one week in the off‑season.
The property is mainly used to produce income.
The result:
- deductions are allowed, and
- expenses apportioned for the private use period.
Example 3 – high‑risk scenario
Michael owns a ski lodge, he advertises the property, but sets prices very high during peak ski season, and rarely receives bookings.
The ATO may consider the property not genuinely available for rent.
The result:
- risk of classification as a leisure facility, and
- deductions denied.
Other risk factors the ATO will consider
The ATO will look at the overall intent and conduct, including:
- Limited marketing or advertising
- Charging above‑market rent to discourage bookings
- Restrictive conditions (e.g. “no families”)
- Renting to friends/family at discounted rates
- Keeping part of the property unavailable to guests
What should you do now?
We recommend that holiday home owners:
- Review how the property is used,
- Ensure it is genuinely available for rent, especially in peak periods,
- Charge market rates and advertise broadly, and
- Keep clear records of bookings, enquiries and availability.
Published 24 June, 2026