Claiming tax deductions for holiday homes – Read our new article here

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Claiming tax deductions for holiday homes

It is very common for an owner of a holiday home to rent out the property during the year. Depending on the circumstances, the property may be available for rent for the whole year or may be available for rent for only parts of the year while the property is not being occupied by the owners of the property.

The ATO has recently issued tax ruling TR 2026/1 and practical compliance guideline PCG 2026/3 which outlines their views and their risk assessments of tax deductions being claimed by owners of a holiday house that is not available for rent for the full financial year. 

In TR 2026/1, the ATO state that if a property is a holiday house, the holding costs of the property (including such expenses as interest on borrowings, land tax and rates) will only be deductible for tax purposes if the property is “mainly” used to derive income during the year. If the property is not being held mainly for the purpose of deriving income during the year, TR 2026/1 states that only expenditure directly connected with the derivation of assessable income from the holiday house (eg agents fees, marketing fees, cleaning expenses etc) will be deductible for tax purposes.

In TR 2026/1, the ATO state that when considering the main use of a holiday house during the year, the ATO will consider the following factors:

  • The way your holiday home is actually used.
  • The amount of time your holiday home is dedicated to income-producing use.
  • The amount of time your holiday home is used for private use, or held for potential private use.
  • The extent to which your holiday home is actually available or used as a rental at a time when use of such a property is desirable for holiday pursuits (such as, during school holidays, public holidays or peak seasonal demand periods).

In PCG 2026/3, the ATO state that a holiday house will not be mainly used to derive assessable income for the year where:

  • Availability of the holiday house is blocked out during peak periods, school holidays and/or weekends.
  • There is very little effort undertaken by the owner to increase occupancy rates.
  • The rental price is above market rates.
  • There are other unreasonable restrictions on renting the property.

However, even if there are no actual block-out periods in relation to the rental of the holiday house, the ATO are still likely to have concerns that a holiday house is not being held “mainly” to produce assessable income if there is low amounts of rental income reported and high amounts of private occupancy during the year (especially during peak periods).

Contact us

If you have any further questions, please do not hesitate to contact your client service accountant at BG Private.

About the author

Tim Olynyk

Tim Olynyk

Partner | Tax Advisory
Tim Olynyk is a Tax Advisory Partner with close to 30 years of specialist experience advising private family groups and professional services firms on complex tax matters. His edge lies in finding smarter structuring solutions, ensuring every transaction is approached with the right tax strategy from the outset.
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