Key Highlights

  • Owners who keep the beach house for family over Christmas and the January school holidays could lose their tax deductions under ATO guidance that now applies to expenses incurred.
  • the ATO finalised three pieces of guidance in late May 2026.
  • TR 2026/1 replaces the long-standing ruling IT 2167, which the ATO withdrew on 12 November 2025.
  • Rulings and compliance guidelines are ATO guidance, not legislation.

Owners who keep the beach house for family over Christmas and the January school holidays could lose their tax deductions under ATO guidance that now applies to expenses incurred from 1 July 2026. This summer is the first peak season under the ATO's finalised approach to holiday homes. How owners fill their booking calendars in the coming weeks could decide what they can claim in their 2026–27 returns.

What the ATO finalised in May

the ATO finalised three pieces of guidance in late May 2026. Taxation Ruling TR 2026/1 covers rental income and deductions, including short-term rentals and holiday homes. Practical Compliance Guideline PCG 2026/2 deals with fair and reasonable apportionment for mixed-use property. PCG 2026/3 sets out how the ATO will approach compliance under section 26-50 of the Income Tax Assessment Act 1997 for holiday homes that are also rented out.

TR 2026/1 replaces the long-standing ruling IT 2167, which the ATO withdrew on 12 November 2025. The ATO lists all three documents in its "What's new" guidance for individuals.

Rulings and compliance guidelines are ATO guidance, not legislation. They set out how the ATO reads the law and where it will focus its compliance work.

Why section 26-50 matters

Section 26-50 is the "leisure facilities" provision. Subject to some exceptions, it denies deductions for the costs of owning a leisure facility, and that term includes holiday accommodation. The new guidance shows the ATO taking the view that it can apply to a holiday home kept mainly for the owner's enjoyment, even if the property is sometimes listed for rent.

Where it applies, the consequences are significant. According to Pitcher Partners' analysis of the draft guidance, deductions for interest, council rates, land tax, maintenance and depreciation are denied, although denied amounts may form part of the property's capital gains tax cost base. "simply putting in place an annual rental agreement may not overcome" the rule.

Green, amber and red: how owners will be sorted

the ATO sorts holiday-home arrangements into risk zones.

The green zone covers properties with high occupancy, especially in peak periods, with limited personal use and active efforts to find tenants. The amber zone covers more personal use, including at peak times, or limited efforts to rent the property out.

The red zone covers owners who block out peak periods for personal use, make little effort to rent, impose unreasonable restrictions on tenants or advertise above-market rates. these cases may go to audit.

The examples that should worry Christmas regulars

The ruling's examples, as summarised by Keypoint, show where the lines fall. "Carla" advertises her beach house all year but blocks out Easter, Christmas, New Year and the school holidays, and it is rented for about five days a year. She cannot claim ownership deductions.

"Daniel and Kate" block out the school holidays and rent their property for 10 to 14 days a year. Their ownership deductions are denied, but platform fees remain deductible.

By contrast, "Eve" uses her property for one or two off-peak nights a year. She can claim her deductions, subject to apportionment.