If you own a holiday home that you also rent out, there’s a tax change from 1 July 2026 that’s worth knowing about.

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And if your current strategy is:

“It’s on Airbnb sometimes, so she’ll be right…”

You may want to read on. 👇

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The ATO is taking a much closer look at holiday homes that are used privately but also rented out during the year.

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The key question is now pretty simple:

Is this genuinely an investment property, or is it really your holiday house that earns a bit of money on the side?

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Because the tax outcome could be very different depending on the answer.

First, what’s actually changing? 🤔

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The ATO has released new guidance around holiday homes that are used privately and also rented out.

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Until now, a fairly common approach has been:

1. Rent the property out for part of the year.
2. Use it yourself for part of the year.
3. Claim the expenses.
4. Adjust the claim for your private use.
5. Head to the beach.

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Simple.

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The new approach puts much more focus on why you actually own the property.

If the property is mainly there to earn rental income, happy days. 🙌 The normal rental property rules should generally continue to apply.

If it’s mainly there because you love spending January in Lorne and you rent it out for a few weekends in August to soften the mortgage pain, we may have a different situation.

Why does it matter?

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Under the tax rules, a holiday home can be considered a type of leisure facility.

Not exactly the terminology you’d use while sitting on the deck with a beer, but here we are.

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There is an exception where the property is used or held mainly to produce rental income.

If you don’t meet that exception, you may lose deductions for some of the major costs of owning the property, including things like:

• interest on your loan
• council rates
• land tax
• insurance
• repairs and maintenance
• depreciation
• capital works

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That can be a big deal.

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We’re not just talking about losing a deduction for the two weeks you stayed there over Christmas.

Depending on the circumstances, some of these ownership costs may not be deductible at all.

So what does “mainly” actually mean?

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Excellent question.

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You’d think there might be a nice clean percentage.

Maybe 51%.

Rent it for 184 days, spend 181 days personally inspecting the balcony, job done.

Unfortunately, no.

The ATO will look at the overall circumstances.

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Things like:

• how often the property is actually rented
• how much you use it yourself
• whether family and friends use it
• how much of the year it’s genuinely available to rent
• whether you charge normal market rates
• whether you block out the most popular times for yourself
• how the property is managed overall

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And this is where things can get a bit awkward.

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Imagine you own a beach house.

You use it for:

Christmas.

New Year.

Easter.

School holidays.

Long weekends.

And every weekend where the weather forecast says anything above 24 degrees.

But don’t worry.

The property is available for rent on the second Wednesday in August.

From 4pm.

The ATO may look at that arrangement and form the fairly reasonable view that earning rental income isn’t really the main game here.

Can you still use the property yourself?

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Yes.

You don’t have to stand outside staring through the window while strangers enjoy your beach house.

Some private use is fine.

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If the property is genuinely held mainly to earn rental income, you can still use it yourself.

You’d then generally adjust the deductions to account for those private periods, as you would under the normal rental property rules.

The issue is when the property is clearly being held mainly for your own holidays and the rental activity is secondary.

Or, put another way, there’s a difference between:

“We own an investment property and occasionally stay there.”

and:

“We own a holiday house and occasionally let strangers stay there to help pay for it.”

Are any expenses still deductible?

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Potentially, yes.

Even where the main ownership costs are caught by these rules, some expenses directly linked to earning rental income may still be deductible.

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For example:

• Airbnb or booking platform fees
• advertising costs
• cleaning after paying guests
• other costs directly related to a rental stay

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So it’s not necessarily a complete tax wasteand.

But the big-ticket ownership costs are where this change can really bite.

What should you do now?

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If you own a holiday home that you rent out, it’s worth taking a closer look at how you actually use it.

In particular, have a think about:

• how many days you use it privately
• when you use it
• how often it’s actually rented
• whether it’s genuinely available during peak periods
• whether your rental pricing is commercial
• what records you keep

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Good records are going to be important.

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The ATO will look at what actually happens with the property, not just what you intended to happen.

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“I was definitely going to rent it out more” may not be the strongest tax position.

The bottom line 🗣️

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If you own a holiday home and rent it out occasionally, don’t automatically assume it will be treated like a normal investment property.

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From 1 July 2026, the line between a genuine rental property and a holiday home earning some side income will become much more important.

And that line could be worth a lot of money.

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If you’ve got a holiday home and you’re not sure where you sit, get in touch. 📨

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We can take a look at how you’re using the property and help you work out what the new rules mean for you.

Preferably before the ATO gets curious.

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– The team at PAL (making accounting slightly less boring since way back when)

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Disclaimer: This article is here to give you general info only, not professional advice specific to your unique situation. While efforts are made to ensure accuracy, the content may change over time. We can’t take responsibility for any decisions based on the contents of this article, so be sure to chat with your accountant or advisor first!

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