Airbnb and Holiday Homes: Could the ATO Deny Your Deductions?

Sally Preston

If you own a property that is rented through Airbnb, Stayz or another short-term accommodation platform, the tax treatment is not always as simple as declaring the income and claiming a percentage of the expenses.

Key message: A holiday home that is also used privately may now be at much greater risk of having major ownership deductions denied if the property is not mainly used to produce assessable income.

What has changed?

The ATO has released updated guidance on rental property income and deductions, including Taxation Ruling TR 2026/1 and Practical Compliance Guidelines PCG 2026/2 and PCG 2026/3. The guidance applies to individuals who earn rental income but are not carrying on a rental property business.

The guidance is particularly important for properties that are rented out on a short-term basis but are also used, reserved or held for holidays or recreation by the owner, family members or friends.

Rental income must still be declared

Amounts received from renting out a property are generally assessable income. This includes income from long-term tenants, short-term guests, online booking platforms, cleaning fees charged to guests, cancellation fees and amounts received from family or friends.

This is the case even if the arrangement feels casual, occasional or informal. The tax issue is not whether the property was rented through a formal real estate agent. The issue is whether an amount was received for allowing someone to use the property.

When can expenses be claimed?

Expenses are only deductible to the extent they are incurred in earning assessable income. For ordinary rental properties, this usually means expenses such as interest, rates, insurance, repairs, property management fees, advertising, cleaning, capital works and depreciation may be deductible to the extent they relate to income-producing use.

Where a property has mixed use, deductions generally need to be apportioned on a fair and reasonable basis. Relevant factors can include actual rental use, genuine availability for rent, private use, blocked-out periods, below-market arrangements and whether the property was available during peak demand periods.

The holiday home problem: leisure facility rules

The ATO’s updated guidance brings renewed focus to section 26-50 of the Income Tax Assessment Act 1997. This provision can deny deductions for losses or outgoings relating to the ownership or use of a leisure facility.

A holiday home can be a leisure facility where it is used, or held for use, for holidays or recreation by the owner, family members or friends. If the property is not mainly used to produce assessable rental income, major deductions may be denied.

This can include interest, council and water rates, body corporate fees, land tax, insurance, repairs, maintenance, decline in value and capital works deductions. Importantly, the rental income may still be assessable even where those ownership costs are denied.

Airbnb and short-term rental properties

Listing a property on Airbnb or another platform does not, by itself, prove that the property is mainly used to earn assessable income. The ATO will look at the substance of how the property is used and held.

Risk increases where the owner blocks out school holidays, Christmas, Easter or local event periods for private use, charges family or friends below-market rates, imposes unreasonable booking restrictions, rejects genuine bookings for non-commercial reasons, or only makes the property available in low-demand periods.

On the other hand, a property is more likely to support deduction claims where it is genuinely available for rent, advertised at market rates, available during peak periods, not reserved for private use, and managed in a way that is consistent with earning rental income.

What expenses may still be deductible if the leisure facility rules apply?

Even where ownership deductions are denied under the leisure facility rules, expenses directly connected with actual rental stays may still be deductible. This may include platform commissions, advertising costs, cleaning after guest stays, guest consumables and similar costs that are directly incurred in earning rental income.

The distinction is important. The ATO may deny the costs of owning or holding the property while still allowing costs that directly relate to an actual income-producing booking.

Practical questions

·         Is the property ever used by you, your family or friends for holidays or recreation?

·         Is the property genuinely available for rent during peak demand periods?

·         Are there blocked-out periods that suggest private use is being prioritised?

·         Are family or friends charged market rent?

·         Are booking restrictions commercially reasonable?

·         Are you taking active steps to maximise rental income?

·         Can you show actual rental use, availability, pricing and rejected booking records?

·         Have you separately tracked expenses directly related to guest stays?

Common traps

·         Assuming Airbnb income automatically makes the property fully deductible

·         Claiming full-year interest where the property was privately used or unavailable

·         Blocking out peak holiday periods for private use while claiming major deductions

·         Letting family or friends stay for free or at discounted rates without adjusting deductions

·         Relying only on the online listing rather than keeping evidence of genuine availability

·         Failing to separate direct guest-stay costs from broader ownership costs

·         Assuming old holiday home apportionment practices still reflect the ATO’s current view

Record keeping is now critical

Property owners should keep platform statements, booking calendars, evidence of advertised rates, blocked-out dates, reasons for rejected bookings, cleaning invoices, guest communications, repair invoices and details of any private or family use.

For holiday homes, the question is no longer just how many days the property was rented. The more important question is whether the property was mainly used, or held for use, to produce assessable income.

Need help?

Smart Solutions Tax Advisory can help review short-term rental arrangements, holiday home deduction claims, apportionment methods and the application of the ATO’s updated leisure facility guidance.

Disclaimer: This article contains general information only and should not be relied on as tax or legal advice.

References / Useful links

ATO new guidance for rental property owners: New guidance for rental property owners | Australian Taxation Office

ATO holiday homes: Holiday homes | Australian Taxation Office

ATO TR 2026/1, PCG 2026/2 and PCG 2026/3 should be considered when reviewing rental property deductions, apportionment and holiday home arrangements.