Holiday Homes and Short-Stay Rentals: How TR 2026/1 Changes What You Can Claim
If you own a rental property that you also use personally — a holiday home, a short-stay apartment, or a property in the country — the ATO has changed the rules that determine what you can deduct.
The ruling is TR 2026/1. It replaces IT 2167, which has governed rental property deductions for close to forty years. This is not a draft or a proposal: TR 2026/1 is a binding ruling, it is already in force, and its effect is broader than it first appears.
What has changed?
Previously, the practical question was whether the property was available for rent. If it was, the deductions generally followed — interest on the loan, council rates, insurance and repairs among them.
TR 2026/1 applies a stricter test. The question is no longer simply whether the property was available for rent, but whether it was genuinely held to produce income, or whether personal use was more than incidental. For many owners, that is a more demanding standard to meet.
The properties most affected are those used for both income and private purposes: the holiday home let for much of the year but reserved over school holidays; the short-stay listing blocked out for family; the property that has always been partly a lifestyle asset. Each now warrants closer examination, and the ATO's position is supported by recent court decisions.
What it means for your deductions
The change affects routine claims — interest, council rates and repairs. Where personal use is more than incidental, these deductions must be apportioned, and the private portion is not deductible. Periods when the property is kept for your own use, or reserved for family and friends, count as private use even if the property remains vacant.
Two assumptions many owners have relied on no longer hold: that brief personal use has little bearing on deductions, and that earning substantial rental income secures them. Any private use requires apportionment — its duration affects the size of the adjustment, not whether one is needed — and rental income, while relevant, does not by itself establish that the property is genuinely held to produce income.
Questions to consider
- Do I use the property personally, or reserve it for family and friends, for part of the year?
- When it is not rented, is it genuinely available — advertised at a market rate, without conditions that discourage prospective tenants?
- Am I claiming a full year of interest, rates and repairs on a property I also use personally?
- Could I demonstrate to the ATO that the property is held to produce income, rather than as a lifestyle asset that also earns some rent?
Why it matters now
Because the ruling is in force, it applies to the returns now being prepared, and the ATO may review earlier years within the standard amendment periods. Where deductions have been over-claimed, the exposure is the tax shortfall, together with interest and possible penalties. Where earlier claims were made in genuine reliance on the previous position, protection may be available for those years; the greater exposure is on returns from the ruling's date of effect onward. Accurate apportionment, supported by clear records, is the safest position.
What you should do
Interpreting an ATO ruling is our role, not yours. What you need is a clear answer: are your deductions sound, or do they need to change?
At Bizally, we assess how your rental property is held and used against TR 2026/1 and determine what you can properly claim. If your position is sound, we will confirm it. If it requires adjustment, we will provide a practical plan, including how to apportion correctly and which records to keep. Contact the Bizally team to arrange a review.
Get in touch with the Bizally team to arrange a review.
This article is general information only and does not constitute tax or legal advice. Seek professional advice specific to your circumstances before making decisions about your rental property deductions.