The Australian Taxation Office (ATO) has released a new draft ruling, TR 2025/D1, which reshapes how income and deductions from holiday homes are treated. This includes traditional long-term rentals, holiday homes, and short-term accommodation platforms like Airbnb. 

 

What’s Changing? 

The draft ruling replaces the decades-old IT 2167 and reflects the ATO’s updated stance on rental income and expense claims.  

 

Here are the key changes: 

All Rental Income Must Be Declared 

Whether you rent out your property formally or informally, all income must be reported. This includes discounted or ‘mates-rates’ arrangements, and even short-term stays by friends or family. 

Closer scrutiny on Holiday Homes 

Deductions for holiday homes are now more tightly controlled. If the property is not genuinely available for rent or is used primarily for personal purposes, ownership costs like interest and rates may not be deductible. Under the proposed changes, the ATO will take a nuanced approach to determine if the home is ‘mainly’ used to generate income. Instead of just using the number of days a property is available to rent in a year, the ATO may deny deductions if the holiday homes is not available for rent during peak seasons.  

Apportionment of Expenses 

If a property is used for both personal and rental purposes, expenses must be apportioned based on actual usage. Only costs directly tied to earning rental income – such as cleaning, advertising, and agent fees – can be claimed. 

Clarification on Family Arrangements 

The ATO has clarified that payments received in household or family contexts may not always be assessable. For example, board paid by a child to a parent may not count as income, but rent from a non-family member likely does. 

Transitional Compliance Support 

To help taxpayers adjust, the ATO has included a transitional compliance approach for holiday homes that are also rented out. This offers some flexibility while the new rules are phased in. 

 

What this means for You 

If you own a rental property or holiday home, it’s time to review your arrangements. Accurate recordkeeping and clear documentation of rental activity will be essential to ensure compliance. The ATO’s new approach signals a more rigorous enforcement of rental deductions, so staying informed and proactive is key. 

 

Our Tax Specialists are here to help. Book a time with Simon if you think you’re likely to be impacted by these changes.