Holiday Homes Under the Microscope

For many, a holiday home is more than just a getaway, it’s a way to help build family wealth while enjoying the Victorian lifestyle. Whether it’s a beach house on the Surf Coast or a rural retreat, many owners list their properties on platforms like Airbnb or Stayz to help offset the holding costs.

However, the ATO has recently shifted its stance. New draft guidance (TR 2025/D1, PCG 2025/D6, and PCG 2025/D7) signals a significant crackdown on how holiday home expenses are claimed.

The core message? The ATO is drawing a firm line between a genuine rental investment and what they call a “leisure facility.”

Why the ATO is Watching

In the past, many owners assumed that as long as they declared their rental income and apportioned their expenses for the weeks they personally stayed there, they were in the clear.

The new reality is tougher. If the ATO decides your property is primarily a lifestyle asset rather than a property held “mainly” to produce income, they may deny almost all of your holding cost deductions. This includes:

• Interest on your mortgage
• Council and water rates
• Land tax
• General repairs and maintenance

In this scenario, you might only be allowed to claim direct “running costs” like cleaning fees for a specific guest stay or the cost of the Airbnb listing itself.

Red Flags for Property Owners

The ATO is using data-matching from booking platforms to identify “high-risk” properties. They are particularly focused on owners who:

• Block out “Peak” times: Reserving the property for family use during school holidays, Easter, or the Christmas/New Year period.
• Set unrealistic rates: Advertising the property at prices significantly higher than comparable local listings.
• Place restrictive conditions: Setting rules that discourage bookings (e.g., “no children” or “minimum 14-night stay”).
• Report consistent losses: Claims for high deductions year after year with very little actual rental occupancy.

What is “Fair and Reasonable”?

Even for properties that pass the “genuine investment” test, the ATO is tightening the rules on how you split expenses between private and rental use. Under PCG 2025/D6, any claim must be “fair and reasonable.”

The two main methods the PPT team looks at are:

1. Time-based: Calculating days the property was genuinely rented vs. available for rent.
2. Area-based: Used if only a portion of the property (like a self-contained unit) is being rented out.

The Takeaway: If you earn $30,000 in off-peak rent but keep the property for yourself during the lucrative summer holidays, the ATO could argue the property isn’t a “genuine” investment. This could turn a tax-effective investment into a significant annual tax bill.

Practical Steps to Protect Your Position

While these rules are slated to apply from 1 July 2026, there is transitional relief for existing arrangements made before 12 November 2025. Now is the time to act:

• Review your calendar: Ensure your property is genuinely available during high-demand periods.
• Check your pricing: Is your nightly rate in line with the local Ballarat or coastal market? Keep screenshots of comparable listings as evidence.
• Tighten your records: We recommend keeping a “property log” that includes booking enquiries (even the ones that didn’t go ahead), advertisements, and a clear diary of private use.
• Review ownership structures: If your property is held in a trust or co-owned, the way income and expenses are split needs to be technically precise.

Tax laws around property are becoming increasingly complex, and the “set and forget” approach to holiday home deductions is no longer an option.

At PPT, we can review your rental arrangements now to avoid an audit trap. We’ll help you stay in the ATO’s “Green Zone” and adjust your strategy before the new rules take effect.

Get in touch to discuss how this may impact your circumstances on (03) 5331 3711.