by Luke Quinnell

Owning a holiday home that’s rented part-time and used personally offers flexibility and potential taxation benefits. Rental income can offset ownership costs, and legitimate deductions—such as interest, rates, and maintenance—may apply for income-producing periods.

However, the ATO closely scrutinises these arrangements because mixed use often leads to inflated or incorrectly apportioned claims. Signs of non-commercial such as blocking peak seasons for personal use or failing to advertise broadly increases audit risk. While mixed-use properties can provide lifestyle and tax advantages, the ATO has in November 2025 withdrew the long-standing IT 2167 renter guidance and released three critical drafts which will impact upon mixed use holiday homes going forward. What follows is a summary of these draft guidelines.

TR 2025/D1

This draft ruling redefines how holiday homes are treated for tax purposes. All payments for property use—even discounted or family rates—must be declared as assessable income. Ownership costs such as interest, rates, and insurance are deductible only if the property is mainly used to earn income, not for personal enjoyment. Blocking peak periods, minimal advertising, or excessive private use will likely disqualify deductions. Mixed-use properties require fair apportionment and detailed records. The focus shifts from mere availability to genuine commercial intent, with transitional relief for arrangements before November 2025. Compliance demands transparency and strong documentation.

PCG 2025/D6

The ATO outlines approved methods for apportioning expenses on mixed-use properties: time-based (days rented versus private use) and/or area-based (Allocate costs based on the portion of the property available for rent). Taxpayers who apply these “fair and reasonable” methods and maintain accurate records will avoid compliance scrutiny. Alternative methods are allowed but must be justified.

PCG 2025/D7

This guideline introduces a risk framework for holiday homes under section 26-50. Properties are classified into Green, Amber, or Red zones based on commerciality: genuine rental activity (Green), mixed personal use (Amber), or primarily private use (Red). High-risk cases face audit and deduction denial. Key factors include peak-season availability, market-based pricing, and advertising.

Considering these new draft rulings/guidelines this may indicate an increased focus from the ATO on deductions claimed on mixed use properties. It is therefore key to ensure you are accurately documenting all relevant timeframes and area of mixed use properties as well as a confirming the genuine commercial intent of renting the property and its related deductions.

Holiday Home Tax Deduction Checklist

Below is a checklist of records we suggest you keep supporting tax deductible claims for holiday homes:

Rental Income Records

  • All payments received (including discounted or family rates).
  • Bank statements or booking platform summaries.

Advertising Evidence

  • Copies of listings, ads, and booking platform details.
  • Dates the property was advertised as available.

Usage Calendar

  • A detailed log showing days rented vs. private use.
  • Note any blocked peak periods.

Expense Documentation

  • Invoices and receipts for interest, rates, insurance, repairs, cleaning, and utilities.
  • Identify expenses that relate to the whole property vs. specific rented areas.

Apportionment Details

  • Floor plan or area measurements (if only part of the property is rented).

Pricing Evidence

  • Proof of market-based pricing (e.g., comparable listings).
  • Any discounts offered and reasons.

Private Use Notes

  • Dates and nature of personal use (including family/friends stays).

For advice on your circumstances, get in touch with us below or call 02 4969 6600.

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