ATO's new guidance on rental property deductions

The Australian Taxation Office (ATO) is proposing to roll out changes that could affect how taxpayers claim deductions for rental properties, especially for those who also use their properties as holiday homes. Here’s a breakdown of what the proposed new rules mean and how they could impact property owners.

What’s Changing?

Under the new guidance, non-business taxpayers who own rental properties must demonstrate that their properties are "mainly" used to produce rental income in order to claim deductions. The term "mainly" is crucial here: it means if you use your property for personal reasons—particularly during peak rental period that you may not be able to claim full rental deductions.

Peak Periods & the “Available for Use” Rule

The ATO will scrutinize whether the property was rented out during peak demand periods, such as holidays. If the property was left vacant during these times for personal use, it could indicate that it wasn’t used primarily to generate rental income, which could disqualify you from claiming deductions.

The ATO is emphasizing the idea that taxpayers should maximise rental income to qualify for rental-related deductions. This means that if you don’t rent out your property during these high-demand times, you might not be able to deduct expenses related to the property.

Apportioning Expenses

For properties that do qualify, the ATO will allow deductions for ownership, maintenance, and other costs—but these will need to be apportioned. The deduction is based on the number of days the property was actually rented out or available for rent on commercial terms. If the property is available but not rented, those days are treated as private use, meaning you can’t claim expenses for those periods.

Short-Term Rentals: A Special Case

For those renting out rooms in their own homes (e.g., via Airbnb), deductions will only apply for the days the room is actually rented out. Any days it’s available but not rented will count as private use, and expenses for those days won’t be deductible.

What Does This Mean for You?

If you use your rental property for both personal and rental purposes—especially during high-demand periods—you might need to rethink how you treat deductions for these properties. The ATO is likely to take a closer look at whether properties are being rented out as much as possible, and if not, deductions could be reduced or denied.

Key takeaways:

  • Rental properties must be "mainly" used for income to claim deductions.

  • Peak periods matter: If the property isn’t rented during high-demand times, deductions could be impacted.

  • Expenses should be apportioned based on actual rental days and availability for rent.

  • Short-term rentals (like Airbnb) will only allow deductions for the days the property is actually rented.

If you own a holiday home or rental property, especially one you use for personal purposes, it’s a good idea to consult your accountant to ensure you're following the new rules and to make sure your deductions are correctly claimed.

These changes highlight the ATO’s increasing focus on ensuring rental properties are used as intended to produce assessable income. By staying informed and reviewing your rental practices, you can make sure you remain compliant and avoid potential issues come tax time.

Editor: If you need more information regarding making these claims, please contact our office.

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Accumulate Accountants + Business Advisors is a consulting firm located in Perth, Western Australia that provides a range of successful businesses with strategic business advice, accounting and taxation services.

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info@accumulateperth.com

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