New guidance on holiday home tax abolishes middle ground
Short-term rental investors will need to professionalise or accept they no longer qualify for tax breaks, says Hospitable's Ethan Brown
The Australian Taxation Office (ATO) has outlined new guidance on how holiday homes are assessed for tax purposes.
Under the new rules, owners who maintain their properties for personal use during peak seasons, for example Christmas, Easter and school holidays, will miss out on major tax deductions. Year-round, commercial availability will be mandatory to claim ownership costs.
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Ethan Brown, General Manager APAC at Hospitable shared with AccomNews what he sees as the likely impact on short-term rental operators, investor behaviour and regional tourism accommodation supply.
What the new rules mean for holiday home owners and STR operators
The ATO has finalised strict new rules that significantly change how holiday home deductions work.
A property can now be classified as a ‘leisure facility’ if private use takes priority, including allowing family to stay for free or blocking out peak periods like Christmas and school holidays for personal use.
Once that classification applies, ownership deductions such as mortgage interest, council rates and insurance can be denied across the entire property for the whole year.
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To continue claiming deductions, owners need to demonstrate that the property is primarily held to produce rental income. That means maintaining detailed records, including booking calendars, advertisements, pricing and enquiries.
The burden of proof now sits firmly with the owner.
The likely impact on investor behaviour
The direction of travel is clear. The ATO and the federal government have been steadily reducing benefits available to property investors, and this is the latest chapter.
Investors take real financial risk to provide accommodation in tourism markets. If you continue reducing the upside of that risk, fewer people will take it.
Over time, I expect to see a pullback in new STR investment, with flow-on effects for property managers, cleaners, contractors, local businesses and the regional economies that rely on visitor spending.
The impact may take time to show up in the numbers, but it will be felt.
The growing divide between lifestyle holiday homes and accommodation businesses
These rules effectively force greater professionalisation across the sector, although that’s separate from whether it’s the right policy outcome.
Property owners take the financial risk and should have the flexibility to decide how and when their asset is used. The practical reality is that anyone who wants to continue claiming deductions will need to operate more like a genuine accommodation business, with documented booking activity, market-rate pricing and evidence of commercial intent.
Owners will either professionalise or accept that they’re running a private holiday home without the associated tax benefits. The middle ground is disappearing.
What it means for regional tourism accommodation supply
In the short term, supply could actually increase as some owners make properties available during peak periods to satisfy the ATO’s ‘mainly rented’ test.
The longer-term picture is different. If these changes reduce new investment into holiday homes and short-term rentals, fewer properties will enter tourism markets in the future.
The net result is likely to be less flexibility for owners and lower overall accommodation supply in the regional destinations that depend on tourism most.
