The Australian Taxation Office (ATO) has recently released three draft documents that affect rental property owners, primarily focusing their attention on holiday homes owners in particular:

Here is what you need to know.

1. Personal use of holiday homes

If your property is mostly used for family holidays or is blocked out for peak holiday seasons such as Christmas, Easter or the school holidays, the ATO may treat it as a private property.

If that is the case, the ATO will deny deductions for ownership costs such as interest and council rates.

2. Advertising the property is not enough

Listing your property on Airbnb or other sharing economy platforms does not guarantee rental deductions.

The ATO looks at actual rental activities and behaviours, not just whether the property is available for rent. If you consistently block out peak holiday seasons for personal use this is likely to gain the attention of the ATO.

3. Section 26-50

PCG 2025/D7 explains that holiday homes mainly used for recreation may be treated as “leisure facilities.” If that is the case, deductions for ownership costs including interest are denied unless the property is primarily used to earn rental income.

4. ATO’s Risk Zones

The ATO has categorised holiday homes arrangement into risk zones. Arrangements that fall in the Amber and Red zone are likely to attract the ATO’s attention.

Green zone (Low risk): Mostly rented, little private use.

  • High levels of income-producing occupancy, particularly around peak holiday seasons where the property is most desirable as a holiday destination.
  • Prioritising deriving income from the property over other purposes.

Amber zone (Medium risk): Some private use during peak times.

  • Increased personal use of the property by the taxpayer and friends.
  • Forgoing income generation from the property so it is available for personal use.

Red zone (High Risk): Mostly private use or unavailable for rent.

  • Prioritising personal use of the property, by blocking out times for personal use each year, advertising unreasonably high rates to likely deter renting activity particularly during periods of high rental demand.
  • Limited attempts to rent out the property.

Can you still claim interest deductions?

Yes, but only if the property is genuinely income-producing.

  • Fully rented holiday homes: Interest will deductible as usual.
  • Mixed-use holiday homes: Interest can be claimed for the rental period, using ATO-approved apportionment methods.
  • Mostly private use: Interest deductions will generally be denied under section 26-50.

Key takeaways

The ATO is targeting properties that look more like private retreats than genuine rentals. If your property has personal use or limited rental activity, it is likely to come under scrutiny.

We recommend reviewing your arrangements and contacting your HLB Mann Judd tax advisor if you are unsure about your current situation.

Co-authored by Raymond Mach, Senior Tax Consultant