Australia: Draft ruling restricts deductions for short-term rental properties

Stricter limits on tax deductions for holiday homes and short-term rental properties

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november 13, 2025

The Australian Taxation Office (ATO) has released a draft ruling (TR 2025/D1) clarifying how individuals who are not in business should treat income and deductions from rental properties, including holiday homes and short-term rentals.

The ruling, which replaces IT 2167, sets out when rental income is assessable and how deductions must be apportioned.

Holiday rentals (particularly via online platforms) have been the subject of ATO scrutiny for several years, with the existing guidance needing a refresh to provide taxpayers with greater certainty on the ATO's approach.

Key elements

  • Assessable Income: All amounts received for the use of a property must be reported as assessable income. This includes formal lets through an agent or online platform and any other amounts paid, even when significantly below market rate including payments for use from friends and family members.
  • Deductibility of home ownership costs: The ruling introduces stricter limits on deductions for properties used personally by the property owner. If a property is classified as a “holiday home,” deductions for ownership costs (such as interest, rates, and maintenance) will generally be denied unless the property is mainly used to produce rental income throughout the year.
  • Deductions remain available for running costs of holiday homes incurred in deriving rental income: Owners can continue to claim expenses to the extent they are non-property costs and are directly incurred in producing assessable income. This means that some deductions for costs related to holiday homes that are partially used for personal purposes will still be available, such as advertising and agent/platform fees and cleaning the property, to the extent that these expenses are directly related to deriving rental income. Costs that are capital, private, or domestic in nature remain non-deductible.


For more information, contact a KPMG tax professional in Australia:

Hayley Lock | hlock@kpmg.com.au

Craig Robinson | crobinson12@kpmg.com.au

Jacqui Tucker | jtucker@kpmg.com.au

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