The ATO has released draft guidance that could significantly change how tax deductions work for holiday homes from 1 July 2026. The focus is shifting from what is said about a property – for example, that it is “available to rent” – to how it is actually used, particularly during peak holiday periods such as Christmas, Easter, school holidays and ski season. For many owners, this is more than a technical adjustment; it may change the after-tax cost of owning a coastal weekender or short-stay rental.

What Is Changing?

In the past, many owners operated under a simple rule of thumb: if the property was genuinely available for rent, holding costs such as interest, rates and insurance were generally deductible, even if the property was not heavily booked.

The draft guidance challenges this approach by zeroing in on two questions:

• First, is the property mainly an investment or mainly for personal use?
• Second, how is the property treated during peak periods when demand is strongest?

If the ATO concludes that a property is primarily used to produce rental income, existing deductions are more likely to be accepted. If it appears that the dominant purpose is personal enjoyment by the owner, family and friends, some or all of the major holding costs may be denied. In practice, this means booking calendars, usage patterns and genuine efforts to attract tenants will carry more weight than statements in the tax return.

Peak periods are a particular focus. The ATO is looking closely at whether a property is truly available for rent at realistic rates when demand is highest, not just during quiet shoulder seasons.

Three Common Holiday Home Profiles

Although each situation is unique, most holiday homes fall into one of the three broad categories. The risk profile under the draft guidance differs for each.

The Family Weekender

The first is the classic family weekender, where the property is mainly used by the owners and their relatives in school holidays and long weekends, with only occasional rentals in quieter periods. In these cases, the ATO may be more inclined to view the property as primarily for private use, and therefore limit deductions for major holding costs, particularly if peak times like Christmas and Easter are consistently blocked out.

The Serious Investor

At the other end of the spectrum is the serious investor, where property is run as a genuine business: professional managed, marketed year-round, competitively priced and available (and often actually rented) during peak periods, with only limited personal use. Here, the facts are more likely to support the view that the property is held mainly to derive rental income, provided records back this up.

The Hybrid

Between these sits the hybrid model, often a high-value property in a prime location that is heavily used by the family in peak times but also listed for rent in off-peak periods, with substantial deductions being claimed. This is where the ATO is most likely to focus. If the pattern shows premium dates reserved for private use and only quieter weeks made available to guests, it becomes harder to sustain the position that the property is primarily an investment rather than a lifestyle.

Why Peak Periods Matter So Much

The draft guidance suggests that how a property is used when demand is strongest is a key indicator of the owner’s true intentions.

A ski lodge that is never available during the snow season but can be booked in October or May, a beach house blocked out every Christmas and Easter for family use, or a city apartment kept for personal use whenever a major event is on – all of these patterns may prompt the ATO to question whether rental income is really being prioritised.

If a property is technically ‘available’ but priced far above market, subject to unrealistic minimum-stay conditions or otherwise unattractive to genuine tenants in peak times, the ATO may treat that as evidence that the property is not truly held for income-producing purposes.

Practical Steps Before The Rules Take Effect

Although guidance is still indraft form, it is prudent to assume that the final position will be broadly similar. That makes the lead-up period an important time to review current arrangements.

One useful starting point is to map how the property has actually been used over the last year or two. This involves looking at the number of nights rented to paying guests, the number of nights used by the owners, family or friends, and the pattern of availability and occupancy during peak holiday periods.

Next, it is worth reviewing the listing and pricing strategy. Questions to consider include whether asking rents are realistic for the area and season, whether minimum-stay requirements are commercially sensible or effectively discourage bookings, and whether advertising is consistent and visible.

Record-keeping also deserves attention. Booking calendars, platform statements, advertising records and a log of private use with dates and purpose can all be invaluable if the ATO asks for substantiation. Without this kind of evidence, it may be difficult to defend a position that the property is mainly an investment.

Finally, it may be appropriate to revisit ownership structures and long-term objectives. For some owners, a holiday home may sit within a broader wealth, superannuation and estate-planning strategy, perhaps involving entities such as trusts, companies or SMSFs. For others, it is fundamentally a private holiday asset with incidental rental income. The emerging ATO approach makes it more important to be clear about which of these applies and to ensure that tax claims align with reality.

A Changing Balance Between Lifestyle and Tax

Owning a holiday home is often as much an emotional decision as a financial one. The proposed ATO changes do not prevent owners from enjoying their properties, but they do make it more difficult to combine extensive personal use with large, ongoing tax deductions.

The key message is that the pattern of use – especially in peak periods – now matters more than ever. Owners who understand how their current practices look through this new lens, and who adjust where necessary, will be better placed to navigate the new rules once they come into force.