Tax changes for holiday homes

The ATO has announced new draft guidelines regarding the tax treatment of holiday homes. Under these proposed rules, rental property expenses for some holiday homes may no longer be deductible.

What has changed?
Previously, most holiday homes were treated as rental properties for tax purposes. This allowed owners to claim deductions such as mortgage interest, council rates, insurance, and land tax.
Under the new draft ruling, many holiday homes will instead be classified as leisure facilities, which removes the ability to claim rental deductions. The key shift is that the ATO will now look more closely at whether the property is genuinely held for income producing purposes, rather than simply whether it is occasionally rented out.

What makes a holiday home a leisure facility for tax purposes?
The ATO will assess how the property is used throughout the year. A property is likely to be treated as a leisure facility if:
• It is mainly used for private purposes, or
• It is not genuinely available for rent, such as when it is rented only to friends or family, or availability is restricted in a way that limits genuine rental activity.

To maintain deductions, the property must be primarily held for income producing purposes. Significant private use or restricting availability—particularly during peak periods—may result in the property being classified as a leisure facility.

Are there exemptions?
A part year exception may apply if, during the income year, the owner changes their intention for the property so that it becomes primarily income producing. In this case, a portion of the expenses may still be deductible for the relevant period.

When does this apply?
The proposed start date is 1 July 2026.

Is this different from Vacant Residential Land Tax (VRLT)?
Yes. VRLT is a Victorian state tax that applies to properties unoccupied for more than six months during the calendar year.
The ATO’s draft ruling is a federal income tax measure that affects whether rental deductions can be claimed. The two regimes operate independently.

What action should be taken?
As these rules are still in draft form, the details may change. It may be helpful to review how often you use your property and consider the potential impact of losing rental deductions on your overall tax position.
If you would like assistance in reviewing your situation, please feel free to contact us.

Published 16/03/26