Owning a holiday home is a lifestyle choice many Australians aspire to. Whether it’s a coastal retreat or a regional escape, these properties often serve a dual purpose: personal enjoyment and the opportunity to earn rental income. However, where personal use and income generation overlap, tax treatment can become complex.
The Australian Taxation Office (ATO) continues to pay close attention to holiday homes, particularly where deductions claimed are significantly higher than income received. The key issue is not ownership itself, but whether the property is genuinely held for income-producing purposes. They are now going to be taking a stand on what they consider a “leisure facility” within the strict meaning of the law.
To claim deductions such as interest, council rates and maintenance costs, a holiday property must be genuinely available for rent and rented at commercial rates. Where a property is largely reserved for personal use, particularly during peak holiday periods, the ATO may take the view that it is not held primarily to produce income. In those circumstances, deductions may be reduced or denied.
No longer is it enough to just have these types of properties advertised for rent on websites such as Airbnb. There are now certain behaviours that will increase the likelihood of the ATO reviewing your income tax return. These include limited or inconsistent advertising, restricting guest access to parts of the property during peak periods, charging rent that is well above or below market rates, or offering discounted stays to family and friends. Each of these factors may suggest the property is not truly available to the broader rental market.
The ATO’s increased focus reflects improved access to data and a history of errors in this area, including undeclared rental income, incorrect deduction claims and misunderstandings around capital gains tax when the property is eventually sold.
Property owners should regularly review how their holiday home is being used and whether their tax claims accurately reflect that use. Maintaining clear records is critical, including advertising listings, booking calendars, rental agreements, evidence of market-rate pricing and details of personal use. These records are often decisive if deductions are questioned.
Holiday homes can still deliver both lifestyle enjoyment and financial returns, but only when tax obligations are managed carefully. Seeking advice before claiming can help ensure your holiday home remains an asset, not a source of unexpected tax issues.
This article first appeared in the Autumn 2026 issue of HLB Mann Judd Perth’s Client Alert.