ATO Finalises Strict New Tax Rules for Holiday Homes

For 40 years, the deal was relatively simple: rent out your holiday home, make legitimate efforts to find tenants, and claim the holding costs for the period it was available. That understanding just ended.

Under TR 2026/1, the ATO has ruled that blocking out peak periods — Christmas, Easter, school holidays — for personal use now disqualifies the property from being treated as “mainly” income-producing. And here’s the shift that caught the industry off guard: “mainly” is no longer just a time-based test. Even if the property is listed for rent more than half the year, if it’s unavailable during the periods when people actually want to holiday there, the ATO will treat it as a leisure facility under Section 26-50 — a provision originally designed for corporate entertainment and boats.

The consequence is blunt: mortgage interest, council rates, insurance, body corporate and capital works deductions are all denied. Only direct rental costs — cleaning, advertising, booking commissions — survive.

According to KPMG, around 250,000 properties are affected. Tony Greco from the Institute of Public Accountants thinks it could force sales: “Once owners figure ‘I can’t do what I normally do’, it could have that behavioural change.” Robyn Jacobson from the National Tax & Accountants’ Association was more direct: “It’s going to be a rude awakening.”

The new stance applies from the 2026–27 financial year, though a transitional approach covers pre-existing arrangements for expenses incurred before 1 July 2026.

→ Our read: If your beach house is “available” 11 months but blocked for Christmas and Easter, the ATO now says that’s not a rental — it’s a lifestyle asset with a tax problem and worth a conversation.