Income tax: rental property income and deductions for individuals who are not in business

This Ruling provides guidance for individuals that earn income from their rental property. It covers earning income from: • the short-term rental market (such as, using online booking or sharing platforms), including renting out a holiday home or letting a room (or rooms) in a home • letting out a property, or part of a property to long-term tenants.

This Ruling explains: • when amounts you receive for the use of your rental property will be assessable income [1] • when losses or outgoings you incur relating to your rental property can be claimed as deductions • how to apportion your deductions when there are both income-producing and non-income-producing uses of your rental property • when certain deductions for your holiday home, that you also use as a rental property, will be denied because it is a 'leisure facility'. [2]

The appendixes to this Ruling provide explanations and a transitional compliance approach: • Appendix 1 explains how the views in this Ruling may apply to your circumstances. • Appendix 2 contains a transitional compliance approach regarding expenses incurred before 1 July 2026 that relate to your holiday home that you also rent out.

The appendixes do not form part of the legally binding section of this Ruling. The examples in Appendix 1 to this Ruling are for illustrative purposes only. Your circumstances might include factors which are not included in the examples so you should not assume that your situation will have the same outcome as the examples. Differences in your particular arrangement, the type of rental property and the relevance of your expenses to the earning of the income may produce different outcomes.

This Ruling does not provide comprehensive advice for individuals who use rental properties in carrying on a business or entities that are not individuals. [3]

Renting out your property, including on an online sharing platform, does not of itself mean you are carrying on a business. There are a range of factors which need to be considered in determining whether you are carrying on a business, see Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? [4]

All further legislative references in this Ruling are to the Income Tax Assessment Act 1997 (ITAA 1997), unless otherwise indicated.

This Ruling does not provide detailed advice on deductions for the following topics: • section 26-31 (rental property travel) [5] • section 26-102 (holding vacant land) [6] • section 25-10 (repairs) [7] • section 40-25 (decline in value) • Division 43 (capital works deductions).

Although not the subject of this Ruling, it is important to be aware that where you rent out some, or all, of your main residence, your ability to access the main residence capital gains tax exemption in full (on an eventual sale) may be compromised. [8]

This Ruling replaces Taxation Ruling IT 2167 Income Tax: rental properties – non-economic rental, holiday home, share of residence, etc. cases, family trust cases (now withdrawn).

IT 2167 was withdrawn with effect from the date this Ruling was issued as a draft for public comment, being 12 November 2025.

In this Ruling and for ease of expression: • 'Leisure facility' is land, a building, or part of a building or other structure, that is used (or held for use) for holidays or recreation. • 'Holiday home' refers to a property, which is a type of leisure facility, that is used (or held for use) for your holidays or recreation (or the holidays or recreation of your family members and friends for no rent or at a reduced rate). • 'Property' refers to land, a building, or part of a building or other structure that you own or lease. • 'Rental property' refers to property which you provide to others under a lease or licence or similar agreement in return for rent, lease premiums, licence fees or other similar charges. Your residence or your holiday home may also be a 'rental property' if it is the subject of a similar arrangement or agreement.

The following 3 steps explain how to use this Ruling.

Work out whether you are receiving assessable income from your rental property. Note: if you are receiving payments for mixed reasons, work out the extent to which the payments relate to your rental property. See paragraphs 20 to 24 and 49 to 68 of this Ruling.

To work out if your rental property is a holiday home, see paragraphs 30 to 43 and 86 to 135 of this Ruling.

If your rental property is not a holiday home, go to Step 3 of this Ruling.

If your rental property is a holiday home, work out if any deductions are denied. Step 3 of this Ruling does not apply to deductions that are denied. For any deductions that are not denied, go to Step 3. Note: deductions relating to the ownership of a holiday home are denied unless an exception applies (such as, where your holiday home is used (or held) mainly to produce assessable rental income or similar – see paragraphs 37 to 43 and 103 to 126 of this Ruling). Note: Practical Compliance Guideline PCG 2026/3 Application of section 26-50 of the Income Tax Assessment Act 1997 to holiday homes that you also rent out – ATO compliance approach explains our compliance approach to determining whether your holiday home is used (or held for use) mainly to produce such assessable income.

Work out what deductions you can claim in relation to your rental property. You will then need to apportion them according to the extent they are incurred in gaining or producing your assessable income – see paragraphs 69 to 85 of this Ruling. Note: in working out the deductions you can claim, you will need to apportion the deductions to the extent of any non-income-producing use – see paragraphs 78 to 85 of this Ruling.

Practical Compliance Guideline PCG 2026/2 Apportionment of rental property deductions – ATO compliance approach explains methods for apportionment that we consider fair and reasonable.

Your assessable income from your rental property includes amounts you derive from rent, lease premiums, licence fees or other similar charges. [9] This includes amounts you receive from your property: • through an agent • through a sharing or other online platform • directly from a tenant.

Amounts of rent, lease premiums, licence fees or other similar charges derived from your rental property form part of your assessable income even if the income is not received at commercial arm's length rates.

If you co-own your rental property with someone else, amounts from rent, lease premiums, licence fees or other similar charges must usually be attributed to each co-owner according to their legal interest in the property, except in very limited circumstances where there is sufficient evidence to establish that the equitable interest is different from the legal title. [10]

Amounts received from householders or family members are not assessable income to the extent they relate to the provision of family care or shared responsibility for household expenses. Whether an amount is for shared household expenses or provision of family care will depend on the facts and circumstances of its payment.

Amounts received in a shared household or family situation may be included in your assessable income to the extent that they relate to providing a lease or licence for the use of your property. Whether, and to what extent, an amount is for a lease or licence will be fact dependent.

You can claim deductions [11] for losses or outgoings relating to a rental property to the extent that they are incurred by you in gaining or producing your assessable income from the property, but not to the extent they are: • capital (or of a capital nature) [12] • of a private or domestic nature [13] • prevented from being deducted under a provision in the ITAA 1997 (such as losses or outgoings related to holding your holiday home, under section 26-50). [14]

A loss or outgoing is incurred when you actually pay an amount or when you have a definitive obligation to pay the amount. A loss or outgoing is not incurred if it is only anticipated or expected to arise when another event occurs. [15] If you co-own your rental property with someone else, expenses must be attributed to each owner according to their legal interest in the property, except in very limited circumstances where there is sufficient evidence to establish that the equitable interest is different from the legal title. [16]

Losses or outgoings must be apportioned on a fair and reasonable basis so that they are only claimed as deductions to the extent that they are incurred in the course of gaining or producing your assessable income.

You will also need to apportion your losses or outgoings on a fair and reasonable basis accounting for the extent that they are capital or capital in nature, or are private or domestic in nature.

What is fair and reasonable depends on the particular facts and circumstances relating to the loss or outgoing.

If your rental property is also your holiday home, certain deductions relating to holding it will be denied because it is a leisure facility (under subsection 26-50(1)) unless an exception applies.

In determining deductions for a holiday home, you must first consider whether section 26-50 denies the deduction. If section 26-50 does not apply, or an exception applies, the deductibility of the loss or outgoing is determined under section 8-1.

Determining whether your rental property is a type of leisure facility that is your holiday home is a matter of fact which requires an objective analysis of how you use it (or hold it for use) for holidays or recreation: • 'Holiday' takes its ordinary meaning as 'a period of cessation from work, or of recreation; a vacation'. [17] • 'Recreation' includes amusement, sport or similar leisure-time pursuits. [18]

Whether your rental property is used (or held for use) for holidays or recreation is determined from the pattern of how the property is used, or held for use, by you (including by your family members and friends for no rent or at a reduced rate) over a period of time, including periods when the property is not actively being used or is unoccupied.

A building, or part of a building or other structure, may still be your holiday home even when it is unoccupied if you hold it for use for holidays or recreation.

You cannot deduct losses or outgoings that relate to the ownership or use of a holiday home to the extent you incur them [19] : • to acquire ownership • to retain ownership • to acquire rights to use it • to retain rights to use it • to use, operate, maintain, or repair it • in relation to any obligation associated with your ownership • in relation to any obligation associated with your rights to use it.

Expenses that do not relate to the ownership or use of a holiday home, such as advertising costs to rent the property or cleaning costs after a guest stay, are deductible to the extent they are incurred in gaining or producing your assessable income.

There are exceptions to the rule that denies a loss or outgoing that relates to your holiday home. If at all times during the income year, you use your holiday home (or hold it for use) mainly to produce assessable income in the nature of rents, lease premiums, licence fees or similar charges, you are not prevented from claiming such a deduction related to your holiday home (because the exception in subparagraph 26-50(3)(b)(ii) applies) provided it is deductible under section 8-1.

Mainly is not defined and so takes its ordinary meaning as 'chiefly; principally; for the most part'. [20]

Subparagraph 26-50(3)(b)(ii) requires consideration not only of whether you use the property mainly to produce assessable income in the nature of rents, lease premiums, licence fees or similar charges, but also whether you hold it for such use.

A holiday home may be used or held for more than one purpose. Accordingly, a simple quantitative assessment, such as the proportion of time the property is used or advertised to produce assessable income, is not sufficient on its own. Determining whether the property is used or held mainly for income-producing purposes also requires a qualitative evaluation of all the relevant facts and circumstances to determine the character of the use for which the property is held.

Whether you use your holiday home (or hold it for use) mainly to produce assessable income in the nature of rents, lease premiums, licence fees or similar charges, does not depend on your subjective intention. Rather, it is objectively determined based on considering a number of factors including, but not limited to, the: • way your holiday home is actually used • time your holiday home is dedicated to income-producing use • time your holiday home is used for private use, or held for potential private use • extent to which your holiday home is actually available or used as a rental at a time when use of such a property is desirable for holiday pursuits (such as, during school holidays, public holidays or peak seasonal demand periods).

No single factor on its own is determinative. All circumstances bearing on the degree, extent and prioritisation of the uses are to be considered. The question is one of fact and degree, to be approached on common sense basis. This involves enquiries into actual use of your holiday home and how it is held for use. It is not to be tested by your subjective intention regarding the main use of your holiday home.

When considering the factors together, an objective conclusion must be reached that your holiday home is used (or held for use) mainly to produce income in the nature of rents, lease premiums, licence fees or similar charges.

Subsection 26-50(7) operates to deny a deduction in relation to a leisure facility where a taxpayer enters into a scheme that, in the Commissioner's opinion, was entered into or carried out to circumvent the operation of subsection 26-50. The provision requires the existence of a scheme, which is defined broadly in section 995-1 to include any arrangement, plan, course of conduct or proposal. The identification of a scheme is an objective matter.

However, once a scheme is established, the question of whether it was entered into or carried out for the purpose of coming within the exception in subparagraph 26-50(3)(b)(ii), and thereby avoiding the application of section 26-50, turns on the Commissioner's evaluative judgment.

If you use your holiday home (or hold it for use) mainly to derive assessable income in the nature of rents, lease premiums, licence fees or similar charges at all times during all or part of an income year, you will not be denied deductions under subsection 26-50(1) for it in relation to that income year or part of the income year.

However, you may change the main use of your holiday home part-way through your ownership period or an income year. A change in its main use will not occur merely by a one-off use that is different from what is otherwise your main use, or due to the regular seasonal pattern of use of your holiday home. Rather, there will be a change in main use if there is a definite and sustained change in the pattern of how your holiday home is used (or held for use).

This Ruling applies to years of income commencing both before and after its date of issue, subject to the transitional compliance approach relating to section 26-50 set out in Appendix 2 to this Ruling.

Your assessable income from a rental property includes amounts you derive from leasing a property through an agent, privately or through an online booking or sharing platform. It also includes amounts that you receive from sub-leasing a property that you lease from someone else.

An amount you derive from a lease, licence or a similar agreement related to a rental property is ordinary income and forms part of your assessable income, even if the income is not received at arm's length. [21]

If you co-own your rental property with someone else, rental income must usually be attributed to each co-owner according to their legal interest in the property, except in very limited circumstances where there is sufficient evidence to establish that the equitable interest is different from the legal title. [22]

The legal interests of co-owners in a property, including as joint tenants or tenants in common, will be shown in the deed [23] for the property. [24] If your legal interest in co-owned property is as: • joint tenants, split the income from the property equally between the co-owners • tenants in common, split the income from the property based on your percentage ownership as shown in the deed for the property.

In the very limited circumstances where there is sufficient evidence to establish that the equitable interest is different from the legal title, split the income from the property based on your percentage of the equitable interest.

You should keep records that support the claims you make in your tax return, including written evidence of your rental and similar income.

Amounts received in the context of household or family situations are not assessable income where they relate to the provision of family care or shared responsibility for household expenses. [25]

It is a matter of fact and circumstance whether an amount is for shared household expenses or a payment for the use of property under a lease or licence. You should be able to show that amounts received to cover household expenses reasonably represent the householder's share of those costs.

Brienne owns her home and her daughter Anna, who is currently doing an apprenticeship, is living with her. Brienne has 2 young sons who also live with her. Brienne and Anna agree that Anna will pay Brienne $200 per week for board, which is used to cover Anna's share – roughly a quarter – of the outgoings. This includes food, electricity and other household expenses. The arrangement between Brienne and Anna is a household or family arrangement as the money paid to Brienne is related to her daughter's share of household expenses rather than for Anna's use of Brienne's property.

If householders have shared responsibility for expenses and contribute to a pool of money to meet them, this is not income. This includes situations where a group of flatmates have entered into a lease agreement where they each have a responsibility to pay a share of the rent, but one flatmate collects and pools the rent to be paid to the landlord.

Coen and Djimon have taken on a lease together for an apartment and have connected electricity, gas and the internet. Djimon pays all the bills (including the lease payment) directly and Coen pays his share to Djimon. There is no income derived by Djimon as Coen is just paying his share of their common household expenses (including the lease expenses). Although this includes Coen's share of the lease payment, it is not included in Djimon's assessable income. It is not a payment that relates to the provision of a lease or licence by Djimon to Coen for the use of the apartment.

Some arrangements in a shared household may still have the character of income. This includes situations where there are sub-leasing or licencing arrangements for the use of a property.

If one occupant leases or owns a property and sub-leases it to the other occupants, to the extent the amounts received from the other occupants relate to the right to occupy the property, they are income derived from that property and therefore assessable. To the extent that the amount is a contribution towards a shared household expense, it is not assessable income.

Following on from Example 2 of this Ruling, if instead of taking on a lease together, Coen owns the apartment and charges Djimon an amount to live in the apartment, the amount Coen receives from Djimon will be income derived from the property and included in Coen's assessable income.

Fatima and Raoul purchase their own home. They bring in a foreign student, Michelle, who lives in a room at their house and eats meals with the family. Michelle's sponsor pays $80 per week to Fatima and Raoul to cover the cost of Michelle's household expenses, such as food and other amenities. As these amounts are calculated to only cover Michelle's part of shared household costs, they are not assessable, and Fatima and Raoul cannot claim any deductions. The $80 does not relate to Michelle paying for the use of Fatima and Raoul's property. Rather, it is a contribution by Michelle for her share of the cost of the household expenses.

If, in the previous example, the payment is $400 per week, which includes a rent component of $320 in addition to the $80 to cover the cost of Michelle's household expenses, this rent payment will be income from Fatima and Raoul's property and need to be declared as assessable income. The $320 forms part of income derived from the property as it relates to Michelle's right to use and enjoy part of the property, which is in addition to sharing the cost of food and other amenities relating to her stay. Fatima and Raoul may be able to claim apportioned deductions for expenses related to ownership of the property, but not for Michelle's contribution to household expenses. [26]

When you rent to family members or friends, there may be considerations other than maximising the rent you receive from your property. In these situations, you might rent your property to family members or friends for below market rate, thereby using the property to also help them with their accommodation. When this happens, you are partly using the property to produce assessable income and partly using it to assist your family member or friend with their accommodation.

If you can show the amount you receive from your family member or friend is not for the use of your property at all, but it is simply a contribution towards the costs of upkeep of that person because you are responsible for that person's care, the amount will not be assessable income. [27] In these situations you would need to show that the amount you receive has no relationship to the use of your property and just relates to the costs of care of your family member or friend.

The amount you receive under a lease or licence from a family member or friend may be less than the full amount you could receive at commercial arm's length rates. These amounts, while non-arm's length, are still rent or licence fees and you need to include them in your assessable income. [28]

Arnaud owns a rental property that he is currently leasing to his brother at a below market rate. The below market rate is because Arnaud wants to help his brother with his living expenses and so Arnaud is using the property to produce his assessable income and to help with his brother's accommodation. The amount that Arnaud receives from his brother is still ordinary income and will form part of Arnaud's assessable income, even though the amount received is below the market rate. Arnaud will need to apportion [29] deductions relating to the property because the reduction in rent represents a non-arm's length amount to help his brother with his accommodation.

You can claim deductions for losses or outgoings relating to a rental property to the extent that they are incurred by you in gaining or producing your assessable income from the property [30] , but not to the extent that they are capital (or of a capital nature) [31] , of a private or domestic nature [32] or not prevented from being deductible under another legislative provision [33] (for example, section 26-50 will prevent deductions for your holiday home unless an exception applies).

Keep records that support the claims you make in your tax return, including written evidence of your deductible expenses.

Generally, a loss or outgoing is incurred when you actually pay an amount, or when you have a definitive obligation to pay the amount. For example, land tax is incurred when the land tax liability arises according to the relevant state or territory law. Your liability to land tax is not determined by when an assessment is issued or an amount is paid. A loss or outgoing is not incurred if it is only anticipated or expected to arise in the future when another event occurs. [34] Taxation Ruling TR 97/7 Income Tax: section 8-1 – meaning of 'incurred' – timing of deductions has more detailed guidance on the meaning of 'incurred' and the timing of deductions.

If you co-own your rental property with someone else, expenses must usually be attributed to each co-owner according to their legal interest in the property, except in very limited circumstances where there is sufficient evidence to establish that the equitable interest is different from the legal title. [35]

The legal interests of co-owners in a property, including as joint tenants or tenants in common, will be shown in the deed for the property. If your legal interest in co-owned property is as: • joint tenants, attribute the expenses from the property equally between the co-owners • tenants in common, attribute the expenses from the property based on your percentage ownership as shown in the deed for the property.

In the very limited circumstances where there is sufficient evidence to establish that the equitable interest is different from the legal title, attribute the expenses from the property based on your percentage of the equitable interest.

Interest on money borrowed by only one of the co-owners which is exclusively used to acquire that person's interest in the rental property does not need to be divided between co-owners.

'In gaining or producing assessable income' means that a loss or outgoing must be sufficiently connected [36] to that income and not just be 'in connection with', or 'for the purpose' of, deriving assessable income. [37] Courts have held that for a loss or outgoing to be sufficiently connected to gaining or producing assessable income 'it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income, or if none be produced, would be expected to produce assessable income'. [38]

Whether a loss or outgoing is sufficiently connected to gaining or producing assessable income depends on all relevant facts and circumstances. There is no precise test. However, the following types of expenses are examples of losses or outgoings that may be sufficiently connected to gaining or producing income associated with a rental property if they are incurred by you (and, if the property is co-owned [39] , relate to your share of the property): • advertising for tenants • body corporate or owners corporation administrative fund fees and charges • council rates • water charges • land tax • cleaning • gardening and lawn mowing • pest control • insurance (building, contents, public liability, loss of rent) • interest expenses on loans for rental properties [40] • property agent fees and commission • repairs and maintenance.

Losses or outgoings that are sufficiently connected with gaining or producing your assessable income are only deductible to the extent that they are incurred in the course of producing assessable income. This means that losses or outgoings on a property may be deductible only in part if you incur them partly in gaining or producing assessable income and partly for some other purpose. For instance, this would include where one part of the property is your residence and you rent the rest out. [41]

Losses or outgoings must be apportioned in a fair and reasonable way between the activities for gaining and producing of assessable income and the other use or purpose. [42] What is fair and reasonable depends on the particular facts and circumstances relating to the loss or outgoing (see PCG 2026/2 for further guidance).

You cannot deduct losses or outgoings that are capital or capital in nature. [43]

Broadly, 'capital or capital in nature' means losses or outgoings that can be expected to have an enduring or lasting benefit. [44] For example, outgoings incurred on the construction of a pool or adding a separate unit of accommodation to a property.

If a loss or outgoing is private or domestic in nature, it is not sufficiently connected to gaining or producing your assessable income and is not deductible.

A property, or part of a property, may have mixed use for both private or domestic and income-producing purposes. In these circumstances, a deduction may be available to the extent that there is a sufficient connection between the loss or outgoing and gaining or producing assessable income. Apportionment of the loss or outgoing on a reasonable basis will be required between the private or domestic use and the income-producing use (see PCG 2026/2 for guidance on what we consider are fair and reasonable apportionment methods).

Prem owns a 2-storey house where the bottom floor is self-contained and the access between floors can be locked from both sides. Prem rents out the bottom floor from time to time at commercial rates. When it is not rented out, he uses it as part of his residence. While the bottom floor is rented out, its use is not for private or domestic purposes. When the bottom floor is used as part of Prem's house at other times, its use is for private and domestic purposes. [45]

Caitlin has a separate self-contained studio apartment, which is on the same land as her house, that she uses exclusively as a rental unit. While Caitlin's house is used for private or domestic purposes, the rental unit is not used for private or domestic purposes. [46]

Section 26-50 operates to deny deductions for losses or outgoings to the extent they relate to a leisure facility, unless an exception applies. Broadly, section 26-50 prevents deductions for expenditure incurred in acquiring or retaining ownership of a leisure facility, acquiring or retaining rights to use it, and in using, operating, maintaining or repairing it. Section 26-50 also denies deductions for expenditure incurred in relation to obligations associated with ownership or rights to use the leisure facility.

The purpose of section 26-50 is to establish a firm rule that prevents taxpayers from obtaining a tax subsidy for expenditure on their own recreation. The Explanatory Memorandum which accompanied the introduction of the predecessor of section 26-50 (former section 51AB of the Income Tax Assessment Act 1936), provides [47] : … this clause will insert in the Principal Act a new provision, section 51AB, to prohibit the allowance of income tax deductions … in certain circumstances, for expenditure relating to … other leisure facilities such as holiday cottages.

A leisure facility is land, a building, or part of a building or other structure, that is used (or held for use) for holidays or recreation. [48]

'Used (or held for use)' requires identification of the use to which a property is dedicated to at a point in time, including periods when the property is not actively being used or is unoccupied. 'Holiday' takes its ordinary meaning as 'a period of cessation from work, or of recreation; a vacation'. [49] Recreation is defined as including 'amusement, sport or similar leisure-time pursuits'. [50]

The rules relating to leisure facilities in section 26-50 apply to holiday homes, because a holiday home is a type of leisure facility. A property that is used, or held for use, for your holidays or recreation, or for the holidays or recreation of your family members or friends for no rent or at a reduced rate, will be a holiday home.

If you use your holiday home as a rental property, certain deductions relating to holding it may be denied unless an exception applies.

It is a matter of fact whether your rental property is your holiday home, which depends on how you use it or hold it for use. Whether your property is used (or held for use) for holidays or recreation is determined from the pattern of how the property is used, or held for use, by you over a period of time.

A building, or part of a building or other structure, may still be a holiday home even when it is unoccupied if you hold it for use for holidays or recreation.

Common examples of ownership expenses which subsection 26-50(1) prevents deductions for include, but are not limited to: • interest on borrowings to finance the property • council rates • land tax • repairs and maintenance.

Where subsection 26-50(1) prevents a deduction for expenses that relate to the ownership or use of a holiday home, those expenses may form part of the third element costs of owning the asset. [51]

Where a loss or outgoing relating to a holiday home does not relate to acquiring or retaining ownership, acquiring or retaining rights of use, the use, operation, maintenance or repair of the property, or obligations arising from ownership or rights of use, subsection 26-50(1) does not apply. Because you can only deduct losses or outgoings to the extent that they are incurred in gaining or producing your assessable income, that are neither capital nor of a capital, private or domestic nature, you must still consider whether the loss or outgoing is deductible under section 8-1. [52]

For example, expenses that do not relate to the ownership or use of a holiday home, such as advertising costs to rent the property or cleaning costs after a guest stay, are deductible to the extent they are incurred in gaining or producing your assessable income from your holiday home.

John owns a cabin at a caravan park. John uses the cabin (and holds it for use) for holidays with his family so the cabin is a holiday home. John is paying a mortgage on the cabin as well as annual fees for its maintenance and repair.

Occasionally, when John knows he will not need the cabin for family use, he rents it out to guests through a sharing economy platform and pays a commission to the platform. The rent John receives is assessable income.

Even though John rents out the property throughout the year, he mainly uses the property for his family holidays.

The portion of the interest on John's mortgage and the costs of yearly maintenance and repair of the cabin which relate to gaining or producing rental income will not be deductible. They relate to acquiring ownership of a holiday home, retaining ownership of a holiday home, and maintaining a holiday home. [53]

The commission paid to the sharing economy platform may still be deductible because it is a loss or outgoing related to renting the property out and not a loss or outgoing relating to the ownership of the cabin.

There are exceptions to the rule in section 26-50 that denies losses or outgoings relating to holiday homes. [54] If an exception applies, you must still consider whether the loss or outgoing is deductible under section 8-1 and you will still need to apportion your deductions to the extent they do not relate to gaining or producing your assessable income [55] , are capital or are private and domestic in nature. [56]

Subparagraph 26-50(3)(b)(ii) provides that if at all times during the income year you use your holiday home (or hold it for use) mainly to produce assessable income in the nature of rents, lease premiums, licence fees or similar charges, you are not prevented from claiming a deduction related to it, that would otherwise be deductible under section 8-1. Other exceptions are not relevant to this Ruling. [57]

The term 'mainly' is not defined and therefore takes its ordinary meaning as 'chiefly; principally; for the most part'. [58]

In Federal Commissioner of Taxation v F H Faulding and Co Ltd [1950] HCA 42, the High Court held that whether mainly (or principally) has a quantitative or qualitative meaning depends on the statutory context. In that case, the presence of the words 'wholly or principally' directed attention to quantity, and the Court concluded that the relevant test was quantitative.

By contrast, in Universal Press Pty Ltd v Commissioner of Taxation [1989] FCA 698, the Federal Court accepted that mainly may involve a qualitative assessment where the task is to characterise the essential nature of the thing in question, rather than to identify its constituent parts.

These cases demonstrate that the meaning of mainly depends on the context in which it appears. It may require a quantitative comparison in some cases, or a qualitative evaluation of all the relevant facts and circumstances in others.

The inquiry in subparagraph 26-50(3)(b)(ii), is not only whether you use the property mainly to produce assessable income, but also whether you hold it for such use. As a holiday home may be used or held for more than one purpose, the word 'mainly' in this context requires a qualitative assessment of the purpose for which the property is used and held.

The way a holiday home is actually used is highly relevant when determining whether it is used (or held for use) mainly to produce your assessable income from rents, lease premiums, licence fees or similar charges. However, a simple analysis of the times during an income year that a holiday home is actively used for rental purposes compared to other uses is inadequate by itself to establish that it is used (or held for use) mainly to produce assessable income. While a quantitative analysis of time is useful, it is not determinative.

Relevant factors are assessed objectively and include the pattern of use of the holiday home and the periods during which it is held for potential private use. The test is not directed to your subjective intention regarding the main use of the property. The mere fact that a holiday home is advertised for rent at times when it is not actively being used is not sufficient, of itself, to establish that the property is used (or held for use) mainly to produce assessable income. Other factors (such as, the use or availability of a holiday home during times when it is desirable as a holiday destination, such as during school holidays, public holidays, or peak seasonal demand periods) may indicate a different conclusion from that suggested by a simple quantitative time-based analysis.

For example, if a holiday home was advertised for rent for more than half of the days in the year, but is not available or used as a rental for all or most of the time when it is desirable as a holiday destination (such as during school holidays, public holidays or peak seasonal demand periods), this will indicate that the main use for holding the holiday home throughout the year is not to produce your assessable income.

Peak seasonal demand for a holiday home varies according to its location and when it is desirable as a destination for holidays or recreation. For example, a property in a coastal or resort area may experience peak demand during the summer season, while a property near a ski field may have peak demand in winter. For a holiday home located in the central business district of a capital city, peak demand may instead be influenced by major events such as sporting fixtures or festivals. Owners should have regard to the location-specific seasonal demand characteristics of their property. This includes considering when peak demand would ordinarily be expected. Owners should be able to objectively explain why the use of their holiday home (including being held for use) for their own holidays or recreation (or that of their family members or friends for no rent or at a reduced rate), does not detract from it being used (or held) mainly to derive assessable rental income.

PCG 2026/3 sets out our approach to determining whether you are using your holiday home (or holding it for use) mainly to produce assessable income in the nature or rents, lease premiums, licence fees or similar charges under section 26-50.

Cho owns an apartment on the Gold Coast that she markets to holidaymakers through a sharing economy platform. Cho provides services for her guests which include tours of the local area and airport transfers. Cho takes all reasonable steps (such as, advertising the property, promptly following up on rental requests and not placing any unreasonable restrictions on rental) to ensure that the apartment is fully rented out and treats the apartment solely as an investment. Cho does not reserve the apartment for her private use at any time. Cho's apartment will not be Cho's holiday home because she does not use it for her holidays or recreation or the holidays or recreation of her family or friends. Cho will not be prevented from claiming deductions for expenses that relate to the ownership or use of her apartment as she only uses it to produce income from rent.

Eve owns a property in a seaside location and rents it out using a sharing economy platform. Though there are other bookings during the year, most of her income is made during the peak summer season when the property is most desirable as a holiday destination.

During off-peak periods, when there are no bookings, Eve will occasionally use the property for one or 2 nights each year while she is on holiday. Because Eve uses the property for her holidays or recreation, it will be a holiday home. She will only use the property if there is a limited chance that it will affect the opportunity for the property to derive income.

Eve does not reserve the apartment for her private use at any time. Eve would not be prevented from claiming deductions for expenses that relate to the ownership or use of her apartment because it is a holiday home, as she mainly uses it to produce income from rent. Eve will still need to apportion her deductions to account for the nights she uses the property. [59]

Carla, who lives with her family in Sydney, owns a beach house in the Whitsundays. The beach house is rented out through an agent and is advertised year-round. However, the beach house is always blocked out for use by Carla and her family and unavailable for rent during Easter, the Christmas and New Year period and school holidays. Although those dates are not always used by the family, the property is not available for paying guests. In addition, Carla rejects most applicants who attempt to rent the beach house and has, in the past, cancelled a couple of booking so she could use it herself. The beach house is rented out, on average, 5 days per year. Because the beach house is used by Carla for her (and her family's) holidays and recreation, it is a holiday home.

The beach house is a holiday home which is mainly used (or held for use) by Carla and her family, and the property is not used (or held for use) mainly to derive Carla's assessable income from rent. Carla must include any rent derived from the beach house in her assessable income but will be prevented from deducting any losses and outgoings relating to the ownership of the beach house. [60]

Similar outcomes will arise if Carla lets her friends stay either rent-free or at a below market rate.

Daniel and Kate have 2 school-aged children and own a house near the beach, though they live in an apartment closer to the city. The house is in an area that is popular with summer holidaymakers and during the year Daniel and Kate advertise the house through sharing economy platforms.

Daniel and Kate block out the school holidays for their personal use of the house. Because Daniel and Kate use the house for their holidays or recreation, it is a holiday home. If they decide not to use the house, they open it up for rentals. Every year they use the house for 2 weeks over the Christmas and New Year period and they generally use it for an additional 2 to 3 weeks throughout the year.

As their own use (and the time they block out for their own use) often coincides with peak rental periods, they tend to only rent the house out for around 10 to 14 days each year.

The house is a holiday home and is not mainly used to produce rental income. Daniel and Kate must include any rent derived from the house in assessable income but will be prevented from deducting any losses and outgoings to the extent they relate to the ownership of the house. [61]

Daniel and Kate can still claim 100% of the expenses which are solely associated with renting out the house, such as the platform's service fees or commission.

You may change your main use of your holiday home part-way through your ownership period or an income year. If you use your holiday home (or hold it for use) mainly to derive assessable income in the nature of rents, lease premiums, licence fees or similar charges at all times during part of an income year, you will not be denied deductions under subsection 26-50(1) for it in relation to that part of the income year. [62] You will still need to apportion your deductions as explained in this Ruling to the extent they do not relate to gaining or producing your assessable income (paragraphs 25 to 29 and 78 to 79 of this Ruling), or are capital or private and domestic in nature (paragraphs 80 to 85 of this Ruling).

This change in use must be more than merely incidental to the pattern of regular seasonal changes relating to the desirability of your holiday home as a holiday destination – for example, a ski lodge being in high demand during winter months and in less demand during the summer months. The change must be a definite and sustained change in the pattern of how the holiday home is used (or held for use) for part of the income year.

The part-year use exception in subsection 26-50(4) refers to, and must be read in the context of, the general exception to the application of section 26-50 in subsection 26-50(3). [63] That test requires that at all times in the year you use the holiday home (or hold it for use) 'mainly' to provide it for an excepted purpose. It contemplates that any use of the holiday home for other purposes subservient to that main purpose will not unseat the main use.

The part-year use exception in subsection 26-50(4) applies when 'at all times during part of the income year', the holiday home is used or held for use 'mainly to provide it' for an excepted purpose. The only way of giving meaning to the term 'at all times' in the subsection 26-50(4) exception is to read the phrase 'use the [holiday home] (or hold it for use) mainly to provide it' in the subsection 26-50(3) exception as referring to a continuous state that includes periods when the property is being let out, and periods when there is some subservient (private) use. Therefore, the part-year exception in subsection 26-50(4) applies only when that ongoing state is broken by a definite and sustained change in the pattern of use of the holiday home for part of the income year, rather than just a pattern of seasonal changes throughout the year.

This interpretation of the exception in subsection 26-50(4) is supported by the Explanatory Memorandum, which accompanied the introduction of section 51AB of the Income Tax Assessment Act 1936, and states [64] : Sub-section (5) will allow account to be taken of situations where property is a leisure facility in relation to a year of income but would not have been a leisure facility if the use to which it was principally applied during a particular part of the year had extended over the whole year. An example would be a boat used principally for the purposes of commercial fishing operations for the first 3 months of a year of income and, following a cessation of the fishing business, used principally for pleasure during the other 9 months of the year.

A change in the pattern of how the holiday home is used (or held for use) might relate to parts of years where: • a holiday home was purchased or disposed of • there is a clear change in the main use of the asset, such as a change from using the holiday home privately to permanently renting it out.

In Example 12 of this Ruling, Carla and her family move overseas on 1 January. Once she moves, Carla will not be returning to Australia in the foreseeable future.

She does not intend to use the beach house privately.

From 1 January, Carla removes all restrictions on the use of her property as a holiday rental. Carla no longer blocks out periods for private use during peak periods and asks her agent to actively market her house as a holiday rental. From 1 January, the beach house is almost always occupied by paying guests. As there is a clear change in use, evidenced by Carla's circumstances and availability of the beach house as a holiday rental, the holiday home will be considered mainly used to produce assessable income from 1 January, and Carla will not be prevented from claiming deductions as a holiday home from that time. Although Carla will not be prevented from claiming deductions from 1 January, she may need to apportion her deductions to exclude any non-income-producing use, private and domestic use or capital items after that date. [65]

The flow chart in Diagram 1 of this Ruling provides a guide to how to apply the principles in this Ruling. Diagram 1: Guide to the application of this Ruling

We acknowledge that: • views on section 26-50 have not previously been publicly expressed in relation to rental properties • individuals who are not in business may have entered into arrangements that may fall under section 26-50 without realising that we would consider whether section 26-50, in addition to section 8-1, applied to an individual's circumstances. Therefore, it is appropriate to apply a transitional compliance approach to the views expressed in this Ruling.

Accordingly, the Commissioner will not devote compliance resources to reviewing whether section 26-50 will apply to expenses incurred in relation to holiday homes that are rental properties, if the expenses are incurred before 1 July 2026.

This transitional compliance approach will not apply if: • there is evidence of avoidance, fraud or evasion, or • you otherwise take inappropriate advantage of this transitional compliance approach.

However, where we are asked to issue or amend assessments or are asked or required to state a view (for example, in a private ruling), this will be done consistently with the views set out in this Ruling.