25/01/2026
Holiday-home owners to act for imminent tax changes.
The ATO issued a new draft ruling on 12/11/2025 to replace the long-standing IT 2167. The successive DRAFT taxation ruling, TR2025/D1, will tighten the ability for holiday-home owners to make deduction claims through redefining certain holiday homes as “leisure facilities”.
Expenses for ‘leisure facilities’ are non-deductible.
From 1 July 2026, this new ruling is proposed to declare holiday homes that are “mainly” used for personal purposes as “leisure facilities”, making expenses related to ownership and the personal use of the holiday home, such as mortgage interest rates, insurance, council rates, maintenance, and other holding costs, non-deductible.
To be eligible for deduction claims, holiday-home owners must prove that their property is “mainly” used for income generation purposes.
E.g holiday homes in popular seasonal areas, such as ski lodges or beach houses, which are unavailable for rent throughout peak seasons, will likely trigger ATO attention and may result in the denial of deductions.
For holiday-home owners who make limited attempts to rent out their holiday properties, make parts of their holiday properties inaccessible for use by guests, price their property well above the market rental rate to drive interest away, and rent the property to family or friends well below the market rate may have their property classified as a “leisure facility”.
Therefore, holiday-home owners must make their holiday homes are “genuinely available for rent” especially in peak seasons such as Christmas, New Year, Easter, public holiday long weekends and school holidays, set a fair market rent, and avoid restrictions that turn away guests like ‘no children’, ‘no pets’ or requiring references for short stays to ensure they can continue making deduction claims.
Feedback on the new draft tax ruling and PCGs is due by 30/01/2026.
