For many Australians, a holiday home is both a treasured escape and a smart investment – a place for memory-making and income generation. But the Australian Taxation Office (ATO) is signalling a firmer stance on how owners use these properties, and the message is clear: if it’s treated like a holiday, it won’t be treated like an investment.
Each year, more than two million investment properties claim tax deductions, averaging nearly $20,000. The ATO’s new draft guidance suggests that many holiday homes may no longer qualify for these deductions unless they are genuinely operated as commercial short-term rentals – especially during peak holiday periods.
Peak Periods Are the Litmus Test
The ATO’s focus is simple: a true income-producing property would be available when demand – and nightly rates – are highest; that means:
• School holidays,
• Christmas and New Year
• Long weekends
• Easter long weekend
• Major tourism or event periods
If a property is blocked out for personal use during these times, the ATO sees it as a sign that it’s primarily a private retreat, not a commercial asset. In this case, owners may lose deductions related to overall ownership costs, such as mortgage interest, council rates, insurance and land tax.
The Red Flags the ATO Is Watching
It’s not just about blocked calendars. The ATO is paying attention to owners who appear to be protecting personal holiday time under the guise of renting. Red flags include:
• Not listing the property during high-demand seasons
• Pricing well above market rates to discourage bookings
• Declining reasonable guest inquiries
• Unusual restrictions, such as very long minimum stays in low season or banning weekend bookings
• Limited marketing or visibility online
These patterns can suggest the property isn’t genuinely available to the public. And with advanced data-matching across booking platforms, property management software and even mortgage details, the ATO now has powerful tools to verify booking activity in real time.
From July 2026: A New Operating Standard
The ATO will roll out more active enforcement from 1 July 2026, giving holiday homeowners time to adjust. The bottom line? Owners may need to rethink how – and when – they use their own homes if they want to retain full tax benefits.
How to Stay on the ATO’s Good Side
The ATO’s number one message is to act like a commercial operator – that means:
• Setting fair and competitive rates
• Being available for booking during peak periods
• Marketing your property like a business, not a side hobby
• Accepting reasonable enquiries and guest requests
• Keeping clear, accurate records
Ultimately, the shift could mean fewer personal long weekends and more paying guests – at least during the most profitable times of year. Owners who want to keep full tax deductions may find they’ll no longer enjoy “the best of both worlds.”
Our Take at Kahuana
As holiday property specialists, we see these changes as an opportunity to create more strategic, intentional rental plans. A home that performs strongly in peak seasons doesn’t just protect tax benefits – it attracts better guests, builds reputation, and delivers stronger long-term returns.
With thoughtful planning and smart calendar management, it’s still possible to enjoy your home and make it work for you. But the balance is changing, and the market is maturing.
To keep your investment truly working like an investment, it needs to act like one.
