What holiday-home investors need to know this summer

Holiday-home owners heading into peak summer are being warned to check their tax claims carefully, with the Australian Tax Office launching a major crackdown on dubious deductions.

H&R Block's Director of Tax Communications, Mark Chapman, says the ATO has tightened its stance after seeing "widespread over-claiming on holiday homes that are, in reality, used largely for private purposes."

According to Chapman, many owners have been claiming full-year deductions for interest, rates and other holding costs "even when the property is occupied by the owners for much of the year or is only superficially advertised for rent."

He says the ATO's updated guidance makes one point very clear: deductions are only available when a property is "mainly used to produce assessable income."

"The ATO wants to draw a firm line between genuine short-term rentals that operate on a commercial footing, and private holiday homes dressed up as investments," Chapman says.

What the ATO now considers "genuinely available for rent"

Chapman says the ATO has become increasingly firm on what counts as genuine availability. A property must be "actively and realistically offered to the open market, and not simply listed as a token gesture," he says.

That means ongoing advertising on public platforms, market-competitive pricing, and a willingness to accept reasonable bookings, particularly in high-demand periods.

"The property has to be run in a way a commercial operator would run it," Chapman says. "Not in a way that protects the owner's preferred holiday calendar."

The red flags that will attract scrutiny

Chapman says the ATO has "become very specific" about the signs that a property is not truly income-producing. One major red flag is deliberately over-pricing a holiday home so that no one books it.

"Setting nightly rates far above market levels, effectively ensuring no one books, is a classic indicator of private use," he says.

Blocking out school holidays, long weekends or the summer peak is another giveaway. "If the owner blocks the calendar for peak periods, the ATO sees that as inconsistent with commercial behaviour," Chapman says.

He adds that regularly declining reasonable bookings or imposing restrictive conditions, such as no weekend stays or minimum two-week bookings in off-peak seasons, will also raise questions.

"These patterns suggest the owner is curating availability to preserve private enjoyment, not genuinely trying to earn income."

How owners can stay on the right side of the ATO

Chapman says the number one rule for owners is to "behave like a commercial operator."

That includes setting genuine market rates, keeping the property available during peak seasons, advertising consistently and keeping thorough records of bookings, enquiries, rejected requests, invoices and cleaning or maintenance logs.

"Good documentation is crucial," he says. "The ATO is crystal clear: if you claim deductions, you must be able to demonstrate that the property was genuinely available and used for income-producing purposes."

The most common mistakes owners are making

Chapman says many taxpayers go wrong by assuming any amount of Airbnb income automatically entitles them to claim holding costs. Others incorrectly claim a full year of deductions even when the property has been used by family or friends at discounted or zero rent.

"Listing the property only intermittently, or at unrealistic prices, to give the appearance of availability is a common error," he says.

Another issue is using aggressive apportionment methods that don't reflect the true mix of private and rental use.

Chapman warns that even discounted family stays count as private use: "For deduction purposes, it's still private use, even if some payment is received."

He says these mistakes all stem from the same misconception: "that the presence of any income makes the property a rental business. Under the new framework, that's no longer defensible."

Part of a broader 2026 compliance push

Chapman says the crackdown on holiday-home deductions forms part of a wider ATO compliance ramp-up for the 2026 income year. That includes increased scrutiny of short-term accommodation operators, rental deductions, work-related expenses and mixed-use assets, along with expanded data-matching across booking platforms and payment providers.

"Digital platform reporting now gives the ATO real-time visibility of bookings and income patterns," he says.

When paired with the new ruling, Chapman says the ATO is well positioned to challenge claims that don't demonstrate genuine income-producing activity.

With summer now in full swing, Chapman says: "If your holiday home is really a holiday home, you can't claim it as an investment property."