Deductions and tax implications for holiday home owners

What is a holiday home?

A holiday home is a property used, or held for use, for your own holidays or recreation, or for use by family and friends either free of charge or at reduced rent.

A property can still be considered a holiday home even if it is rented out part of the year.

Holiday home – not rented out

If you don’t rent out your holiday home, there are generally no tax implications until you sell the property.

Once sold, you may need to calculate a capital gain or loss. Keep all purchase and ownership records to support future CGT calculations.

Holiday home – rented out

If your holiday home earns rental income, that income must be declared in your tax return.

The deductions you can claim depend on whether the property is used or held mainly to produce rental income.

Deductions for holiday homes

Holiday homes are classified as leisure facilities. Special deduction rules apply. You can only claim ownership and use expenses if the property is mainly used, or held for use, to earn rental income.

Ownership and use expenses include loan interest, borrowing costs, council and water rates, body corporate fees, land tax, and repairs and maintenance. These expenses do not include booking fees, advertising or cleaning costs associated with renting the property.

Used or held for use mainly to produce rental income

The ATO considers several factors when determining if a holiday home is mainly used to earn rental income, including:

• how the property is actually used

• the amount of time dedicated to rental use

• private use by owners, family or friends

• if the property is available during peak holiday periods.

No single factor determines the outcome. Simply advertising the property for rent is not enough if personal use is prioritised. The owner’s intention alone is also not relevant.

Holiday home – deductions when not mainly producing rental income

If the property is not mainly used to produce rental income, ownership and use expenses are not deductible. However, direct rental-related expenses may still be deductible.

Holiday home – deductions when mainly producing rental income

Where the property is mainly used to earn rental income, deductions can generally be claimed to the extent expenses relate to producing that income.

Expenses may need to be apportioned while other expenses remain fully deductible if they relate solely to rental activity. Expenses relating to private use are not deductible.

Holiday home – clear change of main use

A holiday home’s main use can change over time. A clear and sustained shift toward genuine income-producing use may allow deductions from that point onward. Seasonal fluctuations or isolated changes in use are generally insufficient.

Holiday apartments and GST

An individual holiday apartment located within commercial residential premises is generally still treated as residential premises for GST purposes.

Leasing

If you lease the apartment to guests or a management company:

• rental income is generally input taxed

• GST is not payable on the income

• GST credits cannot be claimed for purchases or imports relating to leasing the premises.

Selling

If you sell the apartment:

• the sale is generally input taxed

• GST is usually not payable

• GST credits cannot be claimed for purchases or imports relating to the sale.

Capital gains tax may still apply.

If you own a holiday home, holiday apartment or short-term rental property that is also used privately, understanding how the ATO views private use versus income-producing use is critical to claiming the right deductions and avoiding compliance issues. Contact Collins Hume on 02 6686 3000 for advice tailored to your circumstances or assistance reviewing your rental property tax position.

Read more, including examples, in Australian Taxation Office article, ‘Holiday homes’, showing update 21 May 2026.