Airbnb and other short-term holiday let hosts who set aside the most potentially lucrative periods in the year for their own personal use could lose their negative gearing tax breaks under new rules issued by the Australian Taxation Office (ATO) this week.

And short-term letting property owners who rent their properties to friends and families at “mates rates” will have to apportion their claims for expenses accordingly.

The ATO has released a draft ruling clarifying how individuals should treat income and deductions from rental properties, including holiday homes and short-term rentals.

Two of the most significant changes are that if the property is not used primarily for rental income – for instance, if the owners block out peak holiday periods for their own or family and friends’ use – deductions of property costs can’t be claimed.  These costs include mortgage payments, strata levies and insurances.

However, costs attributable directly to the generation of rental income, such as advertising and cleaning charges, will be claimable.

“Anyone who is lucky enough to own a holiday rental should work with their advisory to be across this new guidance,” KPMG tax partner Hayley Lock says. “There are important clarifications from the ATO on their approach to deductions.

“The ATO has been looking at short-stay rentals such as Airbnbs as a focus area for individual tax compliance for several years. They’ve used this activity to gather intelligence on what people are claiming and their own views on whether those deductions for ownership costs should be allowed.

“This guidance (TR 2025/D1) represents their updated view. Key risks they’ve identified are not only around the time that the property is used for different activities but a range of other factors such as how the property is rented during peak holiday periods.”

Approximately 250,000 or 2% of the nation’s housing stock is currently held for the purposes of operating as short-stay or holiday accommodation, says KPMG in a media release.

“Holiday rentals (particularly via platforms) have been the subject of ATO scrutiny for several years and it is clear that the existing guidance needed a refresh to provide taxpayers with greater certainty on the ATO approach,” it continues.

“Many of these properties are negatively geared, providing potentially significant tax breaks to owners and investors. The new ruling sets out when rental income is assessable and how deductions must be apportioned.”

Key Changes

KPMG provided the following summary of all the key changes in the draft ruling. All amounts received for the use of a property must be reported as assessable income.  This includes formal lets through an agent or online platform, and any other amounts paid even when significantly below market rate including payments for use from friends and family members.

The new ruling introduces stricter limits on deductions for properties used personally by the property owner. If a property is classified as a “holiday home,” deductions for ownership costs (such as interest, rates, and maintenance) will generally be denied unless the property is mainly used to produce rental income throughout the year.

However, owners can continue to claim expenses to the extent they are non-property costs and are directly incurred in producing assessable income.

This means that some deductions for costs related to holiday home’s which are partially used for personal purposes will still be available such as advertising and agent/platform fees and cleaning the property to the extent that this expense is directly related to deriving rental income.  Costs which are capital, private, or domestic in nature remain non-deductible.

Impact on owners

1. Holiday Home Owners: The biggest change is for owners who mix personal and rental use. Simply advertising a property for rent is not enough – —availability during peak holiday periods and actual rental activity including owners rejecting requests to book the property will be scrutinised. Owners who block out periods of peak demand such as school holidays may lose access to deductions for all ownership costs.
2. Proportioning expense deductions: Owners with some personal use will need to ensure that they document not only the actual running costs incurred but also the basis for any apportioned expense claims expected to justify any deductions they wish to take.
3. Family Arrangements: Renting to relatives at below-market rates still counts as assessable income, but deductions must be apportioned to reflect the non-commercial nature of the arrangement.
4. Compliance Burden: The ATO will apply a transitional compliance approach for arrangements entered into prior to 12 November 2025, but, from 1 July 2026 onwards it is likely that enforcement will tighten with a likely focus on record-keeping and evidence of genuine intent to rent the property.

 Checklist for Owners

• Review Property Use: Assess whether your property is genuinely available for rent during peak periods. If private use dominates, expect deductions to be denied.
• Plan Ahead: Maintain detailed logs of rental income, advertising efforts, booking calendars, and private use dates on a contemporaneous basis. If your record keeping is not sufficient, get this up to date ahead of the end of the transitional relief on 30 June 2026.
• Apportion Deductions: Use fair and reasonable methods to split running cost expenses between private and income-producing use, consider whether you need to change your approach to managing your ongoing tax affairs in relation to anticipated income figures.
• Seek Advice: The ATO will be releasing detailed “Practical Compliance Guides” to support owners, however, properties with mixed personal and rental use can create complex tax and compliance obligations – seek professional advice as required.