Understanding the ATO's New Holiday Home Guidance

Information for Professional Holiday Homes Owners

Important: This information is provided as general guidance only. Professional Holiday Homes is not a registered tax agent and does not provide taxation advice. Every owner's circumstances are different. You should seek advice from your accountant or registered tax adviser regarding your personal tax position.

Background

The Australian Taxation Office (ATO) has introduced a new compliance guideline for holiday homes that outlines how it will assess claims for deductions relating to holiday rental properties.

The guideline applies from 1 July 2026 and introduces a traffic light (Green, Amber and Red) compliance framework. Rather than changing the law, it helps identify which holiday home arrangements are less likely to attract ATO attention and which may receive greater scrutiny.

The purpose of this page is to help you understand the practical implications of these changes and how they may influence decisions regarding the use of your holiday home.

Why has the ATO introduced this guidance?

The ATO is focusing on whether holiday homes are genuinely operated as income-producing investments or whether they are primarily being retained for the private enjoyment of the owners.

When reviewing holiday home deductions, the ATO may consider factors such as:

• How often the property is available for genuine commercial rental.

• How frequently the owners use the property themselves.

• Whether owner bookings occur during peak demand periods.

• Whether restrictions placed on bookings limit the property's commercial availability.

The ATO's overall focus is whether the property is being operated with the primary purpose of earning assessable rental income.

Understanding the Green, Amber and Red Zones

The ATO has introduced a compliance framework that categorises holiday homes into different risk levels.

Green Zone

Generally represents lower-risk arrangements.

These properties are typically:

• genuinely available for rent throughout the year;

• operated on a commercial basis;

• subject to only limited private use; and

• managed in a manner consistent with maximising rental income.

Owners in this category are generally less likely to be selected for ATO compliance activity.

Amber Zone

Represents arrangements that may attract additional attention.

Examples may include:

• moderate levels of owner use;

• extended owner bookings during desirable periods;

• restrictions on guest bookings; or

• circumstances that reduce the property's commercial availability.

The ATO may undertake additional enquiries where appropriate.

Red Zone

Represents arrangements considered to present a higher compliance risk.

Examples may include:

• extensive owner occupation;

• owner use during periods of highest rental demand that reduces the property's commercial availability;

• limited genuine availability for guests; or

• other factors suggesting the property is being retained primarily for private use rather than generating income.

This does not automatically mean deductions will be denied. However, these arrangements are more likely to attract ATO scrutiny.

What does this mean for PHH owners?

The majority of PHH owners operate their properties as genuine commercial holiday rentals.

However, owners should carefully consider the impact that significant personal use may have on both:

• rental income; and

• their personal taxation position.

Particular care should be taken when considering owner bookings during periods that generate strong guest demand and higher nightly rates.

Peak Demand Periods

One of the factors the ATO may consider is whether a holiday home is genuinely available for rent during periods of high demand.

While the ATO has not prescribed a definitive list of "peak periods", Professional Holiday Homes considers the following to be the highest demand periods across the majority of our portfolio:

• Christmas and January school holidays

• Australia Day long weekend (where applicable)

• Easter long weekend

• April school holidays

• Anzac Day long weekend (where applicable)

• June long weekend

• October long weekend

Please note that the ATO's assessment of peak demand periods may differ depending on your property's location, local events and market conditions. The periods listed above reflect Professional Holiday Homes' experience of the strongest demand and highest nightly rates across the regions we manage.

Using your property during these periods may reduce your annual rental income and, depending on your individual circumstances, may also be relevant when considering the ATO's published guidance.

The ATO has not prescribed a minimum number of days that an owner can use their property before it becomes a compliance concern. As a result, owners should not assume that using the property for only a few days or a single week during a peak demand period will have no impact. Owner use during these periods may be considered by the ATO together with your property's overall pattern of private use, commercial availability and rental activity throughout the financial year.

This does not mean owners should avoid using their property. Rather, owners should understand that any owner booking during periods of highest demand may be a relevant factor when the ATO assesses whether a property is being operated as a genuine commercial holiday rental.

If you are unsure how these guidelines apply to your individual circumstances, we recommend discussing your situation with your accountant or registered tax adviser before making owner bookings during peak demand periods.

PHH Recommendations

While every owner's circumstances are different, we generally recommend that owners:

• maximise the commercial availability of their property where practical;

• minimise personal use where possible;

• avoid owner bookings during peak demand periods where practical;

• maintain accurate records of all owner stays; and

• discuss any taxation implications with their accountant before making significant owner bookings.

These practices not only help maximise the earning potential of your property, but are also generally more consistent with operating a genuine commercial holiday rental.

Does PHH restrict owner bookings?

No.

Your property belongs to you.

You remain free to use your property whenever you choose, subject to existing bookings and the terms of your management agreement.

Our role is simply to ensure you are aware of the ATO's published guidance so that you can make informed decisions.

Frequently Asked Questions

Can I still stay at my property?

Yes.

There are no restrictions preventing owners from using their own holiday homes.

However, significant private use may affect your taxation position depending on your individual circumstances.

Will PHH stop me from making owner bookings?

No.

Owner bookings remain entirely your decision.

Does PHH provide tax advice?

No.

Professional Holiday Homes is not a registered tax agent.

We can explain the ATO's published guidance, but only your accountant or registered tax adviser can advise how the guidance applies to your personal circumstances.

How do I know whether I fall into the Green, Amber or Red Zone?

Only your accountant or tax adviser can assess how the ATO guidance applies to your individual circumstances.

If you have concerns regarding your level of owner use or availability for rent, we recommend discussing this with your accountant.

Should I avoid using my property altogether?

Not at all.

Holiday homes are purchased to be enjoyed.

The important consideration is achieving an appropriate balance between personal enjoyment and operating the property as a genuine commercial rental investment.

Our Commitment

Professional Holiday Homes is committed to helping owners maximise both the performance of their investment and their understanding of significant industry developments.

We continually monitor regulatory changes affecting the short-term rental industry and will continue to keep owners informed of developments that may impact their investment.

Disclaimer

The information contained on this page is provided for general information purposes only and should not be relied upon as taxation, financial or legal advice.

Professional Holiday Homes is not a registered tax agent and does not provide taxation advice.

You should obtain independent advice from your accountant or registered tax adviser before making decisions regarding your personal tax affairs.