Holiday homes
Taxation Ruling TR 2026/1 Income tax: rental property income and deductions for individuals who are not in business provides guidance for individuals that earn income from their rental property. It covers earning income from:
- the short-term rental market (such as using online booking or sharing platforms), including renting out a holiday home or letting a room (or rooms) in a home
- letting out a property, or part of a property to long-term tenants.
The Ruling explains:
- when amounts you receive for the use of your rental property will be assessable income
- when losses or outgoings you incur relating to your rental property can be claimed as deductions
- how to apportion your deductions when there are both income producing and non-income producing uses of your rental property
- when certain deductions for your holiday home, that you also use as a rental property, will be denied because it is a ‘leisure facility’ that is not used or held for use mainly to earn assessable rental income.
Two Practical Compliance Guidelines have also been issued.
Practical Compliance Guideline PCG 2026/2 Apportionment of rental property deductions – ATO compliance approach
This guideline provides guidance to taxpayers on appropriate methods for apportioning rental expenses when they use a property to produce assessable income and hold it for another use (for example, part of a property is rented out, and part of the property is their residence). In these situations, losses and outgoings related to the property will need to be apportioned on a ‘fair and reasonable’ basis to work out the deduction that can be claimed.
Practical Compliance Guideline PCG 2026/3 Application of section 26-50 to holiday homes that you also rent out – ATO compliance approach
This guideline provides guidance to taxpayers on managing their compliance risks with respect to section 26-50 of the Income Tax Assessment Act 1997, which is a tax law integrity provision. Section 26-50 denies deductions for losses or outgoings that relate to the ownership or use of a holiday home unless an exception applies.
For more information on holiday homes and the expenses you can and can't claim, see Holiday homes.
Information on new State government charges for short-term letting have been added to the section on Land tax and other State charges.
Build to rent
From 1 January 2025, owners of eligible build to rent developments may make a choice for their development to access the tax incentives. To make a choice, they must lodge the approved form with the Commissioner.
This measure is now law.
On 28 April 2023, the Australian Government announced tax incentives to increase the supply of housing, by:
- reducing the withholding tax rate for eligible fund payments from managed investment trusts (MIT) attributable to residential active build to rent developments from 30% to 15%.
- This incentive will be open to developments irrespective of when construction commenced.
- From 1 January 2025, foreign residents from an information exchange country are subject to a final MIT withholding tax rate of 15% for income and gains attributable to a residential property, including build to rent developments.
- increasing the capital works tax deduction depreciation rate for active new build to rent developments from 2.5% to 4% per year.
- This incentive is open to developments where construction commenced after 7:30 pm, 9 May 2023 and will shorten the period that construction costs of eligible buildings are depreciated from 40 to 25 years.
For more information, see:
- Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Act 2024External Link
- Capital Works (Build to Rent Misuse Tax) Act 2024External Link
- Build to rent development tax incentives
Foreign resident capital gains withholding
From 1 January 2025 the foreign resident capital gains withholding (FRCGW) rate increased to 15% and the threshold was removed. It applies to all individual and non-individual vendors (property sellers) selling or disposing of certain taxable real property.
Australian residents selling property need a clearance certificate to avoid having an amount withheld from the sale price.
Types of property include:
- your home
- investment properties
- vacant land, buildings, residential and commercial property
- mining, quarrying or prospecting rights where they're situated in Australia
- a lease over real property in Australia
- indirect Australian real property (IARP) interests, where the holder has a right to occupy land or buildings on land.
The 15% withholding rate applies to the market value of all property contracts signed on or after 1 January 2025, unless the vendor (property seller):
- is an Australian resident for tax purposes and provides their clearance certificate to the purchaser
- is a foreign resident who can reduce the amount withheld by supplying the purchaser with a variation notice.
If you're an Australian resident and you didn't obtain a clearance certificate, you can claim the amount that was withheld in your tax return. For full instructions, see:
- myTax 2026 Capital gains or losses
- Capital gains 2026 (paper tax return).
Effective life determinations
We have updated how we publish effective life determinations.
The decline in value of a depreciating asset is worked out on the basis of its effective life. You can either make your own estimate of its effective life or use the Commissioner's effective life determinations. For assistance with both, see Effective life of an asset.
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