MEDIA RELEASE (AU)

Chartered Accountants Australia and New Zealand (CA ANZ) is urging holiday homeowners to understand a significant change in how the ATO applies existing tax law to second homes, affecting what expenses can be claimed from the current financial year.

The Australian Taxation Office (ATO) has finalised guidance applying a long-standing provision, the "leisure facility" rule, more strictly to holiday homes. Under these rules, a holiday home that is not held mainly to produce income may be treated as a leisure facility, denying most ownership deductions.

Where a property is classified as a leisure facility, mortgage interest, council rates, land tax and maintenance are denied in full, with no apportionment for periods the property was available for rent. Only expenses directly related to earning rental income, such as advertising, cleaning after guest stays and booking commissions, remain deductible.

“This is a major shift,” CA ANZ Tax Leader, Susan Franks sad. “If your holiday home is primarily for personal enjoyment, you may no longer be able to claim key expenses, even if you rent it out occasionally.”

How the ATO will assess usage

The ATO will no longer rely on the "days available for rent" method alone. Instead, it will assess whether the property is held mainly to produce income, weighing a wider range of factors.

Deductions are more likely to be denied where:

• Availability is restricted or blocked during peak periods
• Owner-imposed booking conditions limit genuine rental opportunities
• Family and friends are charged below-market rates

"Beach houses, ski lodges and similar properties in popular seasonal destinations will face closer scrutiny if they are not genuinely available when demand is highest," Ms Franks said.

Transitional compliance window

The ATO has said it will not review expenses incurred before 1 July 2026.

However, Ms Franks cautioned that this is not a long-term exemption. "This is a window, not a free pass. Taxpayers should use this time to understand how the rules apply to them going forward," she said.

Advice critical as scrutiny tightens

CA ANZ is encouraging holiday homeowners to check how the guidance applies to their circumstances.

"Holiday homeowners need to look closely at these changes, so they are not caught out by the ATO," Ms Franks said.

“To maintain eligibility for deductions, owners will need to demonstrate that their properties are genuinely available for rent, especially during peak periods, offered at commercial market rates, and free from unnecessary restrictions that deter guests.”

"To keep their deductions, owners need to show the property is genuinely available for rent, especially in peak periods, offered at market rates, and free of restrictions that deter guests," Ms Franks said.

She stressed the importance of good record-keeping and professional advice.

"Keep detailed records and talk to your Chartered Accountant about how these changes affect you," Ms Franks said.