We've released updated guidance to clarify how we assess rental property income and expenses, to reflect changes in the way investors rent out their properties.
This is particularly important for clients whose rental property also doubles as a holiday home.
The new taxation ruling and 2 practical compliance guidelines (PCGs) provide updated advice and guidance for your clients earning income from their property, including:
- when income received for the use of a rental property will be assessable income
- when expenses incurred can be claimed as deductions
- how to apportion deductions when there are income producing and non-income producing periods
- when deductions for a holiday home will be denied.
The update applies to the short-term rental market (e.g. using an online booking or sharing platform) as well as long-term rentals. The short-term market includes renting out a room in a main residence and renting out entire houses and holiday homes.
A holiday home refers to property that is used (or held for use) by your clients for holidays or recreation (or the recreation of their family members and friends).
What this means for your clients
- Clients who want to claim deductions for a rental property that doubles as a holiday home must ensure the property is mainly used to earn assessable income.
- If the property isn’t used primarily to earn assessable income, your clients won’t be able to claim deductions, including for ownership or use expenses. This includes interest expenses, council and water rates, body corporate fees, capital works and decline in value. Only expenses such as advertising costs, cleaning costs after a guest stay and booking fees and commissions will be deductible.
- If the holiday home is used mainly to produce income, but there’s a small portion of private use (for example, a week or a few weekends in the off-season where there was no booking, or very low chance of a booking) then your clients can claim a deduction. The expenses must be apportioned, and they can’t claim for the period of private use.
For more information and practical examples, see:
TR 2026/1 Income tax: rental property income and deductions for individuals who are not in business
PCG 2026/2 Apportionment of rental property deductions – ATO compliance approach
PCG 2026/3 Application of section 26-50 of the Income Tax Assessment Act 1997 to holiday homes that you also rent out – ATO compliance approach.