Holiday Home Tax Rules 2026: What Airbnb Owners Can Still Claim

What Changed In 2026

On 20 May 2026 the ATO issued Taxation Ruling TR 2026/1, Income tax: rental property income and deductions for individuals who are not in business. It replaces the old ruling IT 2167, which the ATO withdrew from 12 November 2025, the day the draft version was released. On the same day the ATO issued two practical compliance guidelines: PCG 2026/2 on apportioning rental deductions, and PCG 2026/3 on holiday homes that are also rented out.

The headline change for short-term rental owners is how the ATO now applies section 26-50 of the Income Tax Assessment Act 1997. That section denies certain deductions for a "leisure facility", and the ruling explains that a holiday home falls into it. The main exception is a property that, at all times during the income year, is used or held for use mainly to produce assessable income.

The ruling says it applies to years both before and after its date of issue, but it includes a transitional approach: the Commissioner will not review whether section 26-50 applies to holiday home expenses incurred before 1 July 2026. In plain terms, the 2026-27 income year is the first one where the ATO says it will look at this question, and the summer of 2026-27 is the first summer peak inside it.

What Counts As A Holiday Home For Tax

The ATO describes a holiday home as a property used, or held for use, for your own holidays or recreation, or for those of family and friends staying at no rent or reduced rent. "Holiday" means time away from work for recreation, and recreation includes amusement, sport and similar leisure.

Plenty of Airbnb properties are not holiday homes at all. In the ATO's example, Cho lives in Geraldton and owns an apartment there that she never reserves for herself or lends cheaply to family or friends. She takes reasonable steps to rent it out, so it is not a holiday home and she claims her expenses normally.

The owners who need to pay attention are those whose property does two jobs: it earns income on Airbnb or Stayz, and it is also the family's beach house or weekend escape.

The "Mainly Used To Produce Rent" Test

To keep the ownership and use deductions, the property must be used, or held for use, "chiefly, principally or for the most part" to earn rent. The test is applied across the income year, and the ATO lists the factors it weighs.

Three points deserve careful reading. First, no single factor decides the question, and simply comparing blocked-out days with rented days is not enough. Second, your intention is irrelevant; the ATO looks at objective facts. Third, the ruling says the mere fact a holiday home is advertised for rent when you are not using it is not, on its own, enough to show it is mainly used to earn income. It even gives an example of a home advertised for more than half the year that still fails because it is not rented during peak periods such as school holidays.

The ruling also tells owners to consider the peak periods for their own location: summer for a coastal house, winter for a snow chalet.

Ownership And Use Expenses Versus Rental Expenses

The new approach splits your costs into two groups, and the split shows what is at stake.

For most owners the first group is by far the larger, which is why the "mainly" test can swing a property from a modest tax loss to a sizeable taxable profit.

Insurance is not named in the ATO's list of ownership and use examples on the holiday homes page, but in the ATO's Hunter Valley example below, insurance is treated as not deductible along with interest and rates. Ask your adviser how each of your costs should be classified.

Two Outcomes: Mainly Rented Or Not

Once the test is applied, the property lands in one of two positions for that income year.

Even when the property passes, some costs are never deductible: costs for periods it was not rented or held for rent, periods of private use, parts of the property that are not rented, cleaning after your own or your family's stays, and repairs for damage you caused.

What The ATO's Own Examples Show

The ATO's holiday homes page works through several examples with real figures. They are the clearest guide to how the test is meant to feel in practice.

Andy received $5,398 in rent and spent more than $60,000 holding the property, yet declares $3,682 of net rental income. Natalie, whose property is run as a rental with one week of personal use, claims nearly all her costs.

Green, Amber And Red: How The ATO Sorts Holiday Homes

PCG 2026/3 explains where the ATO will focus its compliance work. It does not set a numeric safe harbour: there is no fixed number of private days, no required occupancy percentage and no set peak-period rule. Zones are decided on a balance of factors, and the examples are illustrations rather than templates.

The guideline only covers individuals who are not in business. It does not cover people carrying on a rental business or properties held by entities such as companies and trusts. The ruling also notes that renting a property on an online platform does not, on its own, mean you are carrying on a business.

Peak Season Is The Pressure Point

Every red example has the same pattern. The owner keeps the most valuable dates for themselves and offers the property to guests when demand is low. The ATO's guidance explicitly asks how often the property is available or rented at school holidays, public holidays and peak seasons.

This is where the commercial logic and the tax logic line up. In holiday markets the peak periods usually carry the strongest rates and occupancy of the year. A short-term rental that gives those dates to family gives up its best income and, under the 2026 approach, may also give up its deductions.

Illustrative Example: Same House, Two Calendars

These figures are illustrative only. They are not from a real property and do not predict earnings or how the ATO will treat any property.

Take a coastal house with a $650,000 investment loan. Annual ownership and use costs are $52,000: $41,600 of interest, $8,400 of rates, water, insurance and similar holding costs, and $2,000 of repairs.

In this illustration, Calendar B earns $55,900 less in rent, yet declares more taxable rental income than Calendar A, and still has to fund the full $52,000 of holding costs from after-tax money. Calendar A earns more, carries its costs through the rental, and keeps two weeks of family time.

Apportionment Still Applies When You Pass

Passing the "mainly" test does not mean every dollar is deductible. The ATO's rental expenses guidance says costs must be apportioned when a property is rented for only part of the year, used privately, used as a holiday home, partly rented, rented below market rates or financed partly for private purposes.

The ATO's Leanne example rents a room through a platform for 100 days. The area calculation gives 43.75% and the time calculation 27.4%, combining to 11.99% of $26,153, or $3,136. Her $425 of platform commission is added in full, for total deductions of $3,561.

The ATO also separates costs you can claim straight away from costs claimed over several years. Interest, council rates, repairs and maintenance, and depreciating assets costing $300 or less are claimed in the year. Capital works, borrowing expenses and more expensive depreciating assets are claimed over time. Second-hand depreciating assets acquired after 9 May 2017 are on the ATO's list of items you cannot claim, which matters when you buy a furnished holiday home.

Declare The Gross, Not The Payout

A common mistake is declaring the amount that lands in the bank account. The ATO says to include all income from renting through a digital platform before fees and commissions are taken out. Income also includes cleaning or host fees charged to guests, cancellation fees, bonds or deposits you are entitled to keep, and insurance payouts such as compensation for guest damage.

The platform fees are then claimed as a deduction, in full, because they relate only to renting to paying guests.

The ATO can also see this income. Under the Sharing Economy Reporting Regime, platforms have reported short-term accommodation transactions to the ATO since 1 July 2023. They report twice a year: transactions from 1 July to 31 December by 31 January, and from 1 January to 30 June by 31 July.

Family And Friends Staying Cheaply

The holiday home definition includes use by family and friends at no rent or reduced rent. Those stays count as private use, and cleaning after them is not deductible.

Where a property is rented below market rate more generally, the ATO says deductions can be limited to the rent received. In its example, Jana rents to her mother for $15,600 against expenses of $20,578, so her deductions are capped at $15,600 and there is no net rental loss. The ATO expects market rates to be backed by evidence, such as comparable listings.

If a relative books, treat it as a private stay and record it, or have them pay the normal rate like any other guest.

Records That Support Your Position

Because no single factor decides the test, good records are what let you and your adviser show how the property was really used. The ATO's holiday homes page also reminds owners to keep all records from purchase to sale for capital gains tax.

A Calendar Plan For This Summer

The 2026-27 income year started on 1 July 2026, so most of its evidence is still being created. Check these general steps with your tax adviser.

1. Decide the main purpose of the property. Is it an investment that you sometimes enjoy, or a family holiday home that sometimes earns rent? Be honest, because the answer drives everything else.
2. Open the peaks. If it is an investment, make Christmas, the January school holidays and Easter bookable at market rates.
3. Move personal stays. Plan family time for shoulder and off-season weeks, or for short gaps that would otherwise sit empty.
4. Set prices that book. Use dynamic pricing based on local demand rather than a high flat rate that leaves the calendar looking available but unbooked.
5. Track the year as it happens. Keep a running log of blocks and stays rather than reconstructing it in June.
6. Review mid-year. In January, check the balance of rented, available and private nights while there is still time to adjust.

Why A Well-Run Airbnb Is The Stronger Position

Long-term rentals are a sound, legitimate investment, and they do not face this holiday home question at all because nobody in the family is using the property. Our view is that a well-chosen, well-run Airbnb can do better: it can earn materially more from the same property, you control the pricing, channels and length of stay, and you keep the flexibility to use it occasionally or fall back to a normal lease.

The 2026 rules reward exactly that kind of operation. A short-term rental that is priced to market, open through the peaks and used privately only in quiet weeks looks like the ATO's green examples. It also tends to be the version that earns the most.

The trouble is the half-way house: listed to help with costs, but held back whenever the family wants it. It earns less, and may now lose its deductions. The fix is not to give up the property. It is to decide what it is for and run it that way.

No strategy guarantees an outcome. Returns depend on the location, local rules, the property, the season and how it is managed, and every owner's tax position is different.

Lodging Your 2025-26 Return This Month

If you lodge your own tax return, the ATO's reminder published on 1 October 2026 says to lodge by 31 October. You may be able to access later lodgment dates through a registered tax practitioner, but only if you engage them before 31 October.

For the 2025-26 year, the transitional approach in TR 2026/1 means the ATO will not review whether section 26-50 applies to holiday home expenses incurred before 1 July 2026. The rest of the ordinary rules still apply: declare gross platform income, apportion for private use and periods not available for rent, and claim only what you can support.