A big change is coming, and most holiday home owners haven't heard about it yet. It could quietly add tens of thousands of dollars to your tax bill. From 1 July 2026, the Australian Taxation Office (ATO) will start fully applying new tax guidance and compliance rules that can take away tax deductions from holiday homes that are mainly used for personal holidays.
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What's changing
Up to now, if you owned a holiday home and rented it out sometimes, you could usually claim most of your running costs against your tax. That means things like loan interest, council and water rates, land tax, insurance, repairs, strata fees and depreciation. You always had to reduce the claim for the days you used the place yourself, and dodgy setups were already being watched. But for most owners, the claims went through as long as the home was really available to rent.
From 1 July 2026, the ATO will start applying its new rules in full. The law itself hasn't changed, but the ATO will now actively check holiday homes, instead of going easy on the years before that date. The question it will ask is simple: is this property mainly there to earn rental money, or mainly kept for your own holidays?
These rules sit under section 26-50 of the tax law, which targets "leisure" properties like holiday homes. It can block their deductions unless the property passes a strict test.
If your home is mainly a real rental, you keep your deductions. You still have to reduce them for any days you use it yourself. But if the ATO decides it's mainly for personal use, almost all of those deductions are gone. The main things you could still claim are direct rental costs, like cleaning, advertising and the fees charged by booking platforms.
For many owners with a loan on the property, losing the big deductions could mean tens of thousands of dollars in extra taxable income each year. Depending on your loan, rates and other costs, that could, as an example, easily be $30,000 to $40,000 or more.
That's not a small paperwork change. That's a real number.
How the ATO decides
It's not just about counting days. The ATO looks at how you actually run the property. A few things matter most.
The biggest one is peak periods. Is your home really available to rent over Christmas, Easter, school holidays and summer? Or do you block out those weeks for yourself, when the home would earn the most? The ATO also looks at your pricing (fair market rates, or prices set high to scare guests off), how fast you reply to booking enquiries, how fussy you are about who can book, and how often the home is actually rented across the year.
The three risk zones
The ATO sorts holiday homes into three groups, like a traffic light.
A green zone home is rented out a lot, especially in peak periods. You only use it yourself now and then, ideally in the quiet season. You reply to enquiries quickly and charge fair rates. Your ownership deductions are generally allowed as long as you also apportion for any personal use.
An amber zone home gets a fair bit of personal use, sometimes with family and friends staying cheaply. The owner might not try very hard to get bookings. The ATO may take a closer look.
A red zone home has its peak periods blocked for personal use, even if the owner doesn't always go. It's often priced above the market, the owner is picky about guests, and it's only rented a few weeks a year. If you're in the red zone, the ATO is very likely to check your tax returns. If the facts match, it can deny your ownership deductions completely.
Why managed properties are better placed
If Special Stays manages your property, you're in a stronger spot than most owners who manage their own. Using a professional manager doesn't guarantee any particular tax result. But it's good evidence that your property is run as a real business: listed all year, priced to the market, and quick to answer guests. That only helps if the home is also kept genuinely available, especially in peak periods, without rules that put guests off. Our whole job is to get you the best return, which is the same behaviour the ATO sees as low risk.
Find out where you stand
The easiest way to get a feel for your risk is to look honestly at how your property runs. In particular, how much of the peak season do you keep for yourself? We've built a free tool that asks five quick questions and gives you a green, amber or red result, plus what it means.
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It takes a couple of minutes, and it could save you from an expensive surprise at tax time.
If your result is amber or red, or you just want to talk it through for your own property, get in touch. We're always happy to help.
Holiday home tax changes: quick FAQ
Do these rules only apply to WA, or all of Australia?
No — these rules are federal tax rules, so they apply to holiday homes anywhere in Australia, not just Western Australia. What matters is how you use and hold the property, not which state it's in.
What exactly happens on 1 July 2026?
From 1 July 2026, the ATO will start actively applying its new guidance on section 26-50 to holiday homes. That means they won't "go easy" on earlier years anymore and can deny ownership deductions where a property is mainly for private holidays rather than for earning rent.
Can I still claim interest, rates and insurance on my holiday home?
You can still claim these ownership costs if your holiday home is mainly used or held to earn rental income, and you apportion correctly for any private use. If the ATO concludes the property is mainly a private leisure asset, section 26-50 can deny those ownership deductions entirely, leaving only direct rental costs like advertising, platform commissions and guest cleaning.
How much personal use is too much?
There's no magic number of nights, but the ATO cares most about what happens in peak periods — Christmas, Easter, school holidays and high-season weeks. If you routinely block out the best weeks for yourself or family and only rent off-peak, the ATO may treat the property as mainly for private holidays, even if you rent it for a fair chunk of the year.
Does listing my property on Airbnb or with a manager guarantee I'm safe?
No. Listing the property and using a professional manager are helpful evidence, but they don't override the basic question: is the property mainly for earning rent, or mainly for your own holidays? If you still block peak periods, set prices above market to deter bookings, or impose rules that put guests off, you can still end up in the ATO's red zone.
I only stay a few weeks a year — can I still lose my deductions?
Yes, it's possible. If those few weeks are Christmas, New Year and school holidays, and the rest of the year is half-heartedly listed, the ATO may still see the property as mainly for private leisure. On the other hand, limited off-peak personal use alongside strong peak-season occupancy is more consistent with the green zone.
What if my property is in a trust or company?
The current ATO guidance is framed around individuals, but the concept of a leisure facility can also be applied to entities like trusts. If a trust-owned property is mainly used for holidays and recreation by beneficiaries or controllers, the ATO may still treat it as a leisure facility and deny ownership deductions, so specialist advice is important.
Does the ATO's green/amber/red zone actually decide my tax outcome?
No. The zones in PCG 2026/3 are about how the ATO allocates compliance resources, not a binding decision on your tax position. Your actual outcome always depends on your full facts and on how section 26-50 applies, which is why you should involve your accountant for anything beyond general guidance.
Is your risk-check tool an official ATO calculator?
No. Our traffic-light result is a plain-English guide based on the ATO's rulings, designed to help you see roughly where you sit on the risk spectrum. It's not endorsed by the ATO and it's not a substitute for a proper review of your situation by a registered tax agent.
The three risk zones are our plain-English version of the ATO's rules, written to help you understand the changes. They are not an official ATO rating. A green, amber or red result is a guide only, not a formal check of your tax position. This article is based on ATO rulings TR 2026/1, PCG 2026/2 and PCG 2026/3, finalised 20 May 2026. The risk-check tool is for general guidance only and is not endorsed by, or connected to, the Australian Taxation Office.