Holiday home or rental home. Is there a difference?

28 September 2026

Both are a valuable appreciating asset, another income stream and can provide a holiday destination for owners, however tightening of ATO rules will now see several taxpayers lose valuable deductions for properties they rent out and use personally.

Previously, interest, rates and repairs could be proportionately claimed, based on the number of days the property was available for rent. Now, property owners will need to review their activities and build their case to determine if their property is a genuine investment (holiday rental) or a lifestyle asset (holiday home).

Available for rent?

Many owners assume that if their property is listed on Airbnb, it is genuinely available for rent and a full tax deduction is available for rates, interest and repairs.

That is not the case anymore. Recent ATO guidance looks beyond the listing on Airbnb (or Stayz, Booking.com etc.) to determine if the property is genuinely available for rent on commercial terms.

Blocking out school holidays, Christmas and Easter (high traffic windows) for personal use, restricting access to parts of the property when rented, placing provisions on noise, minimum stays, pets, and frequent use by owners, friends or family are all situations that raise concerns when trying to determine if the property is genuinely available, i.e. a holiday rental not a holiday home. While some of these restrictions are out of the owners’ control, supporting evidence is crucial in developing the argument.

Why does this matter?

If your property is classified as a holiday home, the deductions are significantly reduced. Rather than claiming deductions for the full year, or even apportioning deductions based on days of private use, taxpayers will be limited in claiming only expenditure that directly relates to the rental income, for example Airbnb fees and cleaning. That means holding costs such as interest, council rates, water rates, land tax building insurance and repairs, are excluded.

A traffic light system

The ATO uses a “traffic light system” compliance approach, and if any of the items in the red zone apply to the property, the ATO will take the view that it’s a holiday home, not an investment.

 If you own a holiday rental and are unsure whether your current arrangements align with the latest ATO guidance, reach out to the office to discuss.

Rebecca Pryor is a Director of PrincipleFocus.