The ATO has released Draft Taxation Ruling TR 2025/D1, proposing stricter rules for holiday homes and short-stay rentals (Airbnb, Stayz, Booking.com). These changes are not yet law, but if finalised, they will apply from 1 July 2026 and could significantly impact your ability to claim deductions – especially if your property is used for private holidays.

Here’s a clear summary of what’s proposed and how it may impact you.

What Is Staying the Same?

The fundamentals remain:

You can still claim deductions for your holiday rental property (interest, rates, insurance, cleaning, etc.).
You must apportion deductions for periods of private use.
You must show the property was genuinely available for rent.

In short – apportionment isn’t new.

What’s Changing (If the Draft Becomes Final)?

The ATO’s proposed approach is much stricter. Key changes include:

1. Deductions may be denied if the property looks more like a holiday home than a rental investment.

If the ATO considers the property primarily for private use rather than income generation, ownership costs (interest, rates, maintenance) may be denied – even if it was rented.

2. Availability during peak periods matters.

Blocking out school holidays, long weekends or prime seasons may trigger compliance risk. The draft highlights that availability during high-demand periods is a key test.

3. Advertising must be genuine and market-based.

Simply listing the property isn’t enough. It must be actively advertised, priced at market rate, easily bookable and free from unreasonable restrictions.

4. Long vacancies will be scrutinised.

Extended vacancy periods require proof of marketing efforts, rate adjustments and booking history to show genuine availability.

5. Documentation requirements increase significantly

To claim deductions, you’ll need detailed records of:
- Individual SG shortfall based on QE
- Notional earnings (interest)
- Administrative uplift (up to 60%)
- Choice loading for non-compliance with fund choice rules

Important to note

The ruling is currently a draft (TR 2025/D1).
It is not yet legally binding – existing laws and guidance apply until the final ruling is issued.
Proposed start date: 1 July 2026 (or later, pending formalisation).
Transitional compliance: The ATO recognises this is a major shift in approach. To ease the transition, the ATO will not apply section 26-50 of the Income Tax Assessment Act 1997 (which denies deductions for expenses related to a “leisure facility”) where:
The property was a rental property before 1 July 2026, and
The rental arrangement existed before 12 November 2025.
This means owners have until 30 June 2026 to review and adjust their arrangements without risk of retrospective enforcement.

What Should Holiday Home Owners Do Now?

Given the draft ruling, we recommend taking proactive steps:

Review how often you use your property for private purposes vs rental.
Ensure the property is available during peak periods and not substantially blocked out.
Improve advertising and confirm your rental rate aligns with market-rates.
Maintain clear and thorough records of all rental activity, advertising, bookings and private use.
Apportion deductions carefully: clearly split between income-producing days and private days.
Consider whether your property operates as a genuine rental business or primarily a private holiday home.

In Simple Terms – If your holiday rental looks more like a private holiday home than a commercial rental business, the ATO may deny many deductions once the draft becomes final.

Need Help?

If you own a holiday rental property or are unsure how these proposed rules apply to you, please contact us. We can review your current rental arrangements and help you structure your deductions and usage to align with the proposed guidance.