12/07/2026
Doing the Right Things vs Doing Things Right: What the ATO’s Holiday Home Changes Mean for You
Most holiday home owners are genuinely trying to do the right thing. They rent the property out when they can, declare the income, and claim the expenses they believe they’re entitled to. The problem is rarely intent — it’s that tax law has quietly moved, resources are limited, and the right advice often only turns up after a review has already started. By then, getting it right from the start would have cost far less than fixing it after the fact.
That gap between doing the right things and doing things right is exactly where the ATO’s new holiday home guidance now sits. On 20 May 2026, the ATO finalised Taxation Ruling TR 2026/1, together with two Practical Compliance Guidelines, PCG 2026/2 (apportionment) and PCG 2026/3 (the “leisure facility” test). These replace the informal apportion-by-days approach many owners have relied on, with a much stricter framework built around an existing but rarely-used integrity rule: section 26-50 of the Income Tax Assessment Act 1997.
This is the kind of change that rewards owners who get ahead of it, and penalises those who find out about it after the fact. So what’s actually changed, and what to do about it.
The core change: the “leisure facility” test
Previously, most advisers treated a rented holiday home simply as a property to apportion — claim deductions for the days it was rented or genuinely available, and exclude the days used privately.
The ATO’s new guidance changes the starting question. Before any apportionment happens, you must first ask: is this property mainly used, or mainly held for use, to produce rental income — or is it mainly a private recreational asset that happens to earn some rent?
If a holiday home is not mainly used or held for use to produce assessable income — for example, where private use is prioritised, particularly during peak holiday periods, or where genuine attempts to rent it are limited, the ATO can classify it as a leisure facility under section 26-50.
Where that applies, deductions for costs tied to owning the property are denied in full. This includes mortgage interest, council rates, land tax, general maintenance, and depreciation on assets within the property. While rental income you receive still remains fully assessable — so a leisure facility can generate taxable income with almost no offsetting deductions. Only expenses incurred directly to earn the rental income itself (such as platform commissions, advertising, and guest-stay cleaning) can still be claimed.
If it isn’t a leisure facility: apportionment still applies
Where a property genuinely is mainly held to produce rental income, and personal use is only a minor, secondary feature, the leisure facility rule doesn’t apply. Instead, the more familiar apportionment approach continues under PCG 2026/2 — deductions are apportioned on a fair and reasonable basis, commonly using time (days rented vs days used privately) or floor area, or a combination of both. Expenses that relate solely to the rental activity, such as platform fees, don’t need to be apportioned at all.
Example: private use is minor
Consider an owner with an apartment near Gold Coast that’s listed and actively rented for most of the year, and used personally for four weeks over summer. Because the property is mainly held to produce rental income, it isn’t a leisure facility. The owner can claim their rates, interest, and other ownership costs, but must reduce those claims by roughly 28/365 to exclude the four weeks of private use — consistent with the ATO’s own worked examples of apportioning by the private-use period.
Example: use changes partway through the year
The ATO’s guidance also recognises that a property’s main use can genuinely change during the year. Where an owner initially uses a property mainly for their own holidays, then from a clear date onward lists it and makes it genuinely available to the public, the property can move from “leisure facility” to “mainly income-producing” from that date.
Deductions become available from the point of that clear change, though the owner may still need to apportion for any remaining private use after that date. Importantly, a one-off change in use, or the ordinary seasonal pattern (for example, a ski property being quiet after the snow season ends), does not by itself create this kind of change.
Example: high-risk vs low-risk arrangements
PCG 2026/3 sets out a risk framework rather than a strict day count. A low-risk arrangement generally involves limited personal use confined outside peak periods and consistently high occupancy the rest of the year. A high-risk arrangement involves the owner using the property heavily over peak periods (such as Christmas or Easter), making only token efforts to advertise it, or placing restrictions on bookings that discourage genuine tenants (high rates). No single factor is decisive — the ATO looks at the whole pattern of use and the genuineness of the rental effort.
Don’t forget the loan: redraw and mixed-purpose interest
A related but separate trap sits inside these changes: loan interest apportionment. Where an owner has redrawn on the property’s loan for private purposes — renovations to their main home, a car, a holiday, and so on — the interest attributable to that redrawn portion is not deductible, regardless of how the rest of the loan is used. The loan becomes a mixed-purpose loan, and interest must be apportioned between the deductible (income-producing) and non-deductible (private) components. This is assessed independently of whether the property itself is a leisure facility.
Key dates and transitional relief
• 12 November 2025 – the ATO first flagged this view (in draft form).
• 20 May 2026 – TR 2026/1, PCG 2026/2 and PCG 2026/3 were finalised.
• 1 July 2026 – the ATO’s transitional compliance approach ends. The ATO has indicated it will not devote compliance resources to reviewing expenses incurred before this date, but this concession does not protect arrangements involving avoidance, fraud, or evasion, or where someone takes inappropriate advantage of the transitional approach.
• From 1 July 2026 – a more active compliance approach applies going forward.
Doing things right, from the start
None of this means holiday home owners have been doing anything wrong. It means the definition of “right” has shifted, and the cost of finding that out late — through an ATO review rather than a conversation with your adviser — is far higher than the cost of a proactive check-in now.
1. Honestly assess whether the property is mainly income-producing or mainly a private asset, especially over peak periods.
2. Keep proper records: booking calendars, advertising history, pricing evidence, and any rental restrictions.
3. Review loan structure to identify and separately track any private redraws.
4. If renting to family or friends, keep evidence the rent reflects a genuine market rate, as no apportionment is required in that case.
5. Speak with your adviser to review existing arrangements and seek clarification.
This is where HV Tax comes in. You don’t need to become a tax expert to get this right — you need the right advice at the right time to put a defensible position in place. Doing things right from the start is always the lower-cost path.
