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The ATO has released Taxation Ruling TR 2026/1 Income tax: rental property income and deductions for individuals who are not in business (TR 2026/1), finalising its position on certain rental income and deductions.
TR 2026/1 applies broadly to long-term rentals, short-term letting arrangements (including via online sharing platforms), and mixed-use properties.
Holiday homes and s 2650
Section 26-50 of the ITAA 1997 denies deductions for losses or outgoings to the extent they relate to a "leisure facility", unless an exception applies.
Under TR 2026/1:
- a holiday home may be classified as a “leisure facility” where it is used or held mainly for private or recreational purposes; and
- in that case, section 2650 may apply to deny deductions for ownership and holding costs (such as interest, rates and maintenance).
An exception applies where, at all times during the income year, the holiday home is used (or held for use) mainly to produce assessable income in the nature of rent, lease premiums, licence fees or similar charges. This requires not merely a quantitative time-based analysis but a qualitative evaluation of all relevant facts and circumstances, including availability during peak seasonal demand periods..
Deductibility and apportionment
TR 2026/1 confirms that:
- deductions are only available to the extent expenses are incurred in producing income;
- private or domestic use must be excluded; and
- apportionment on a fair and reasonable basis is required for mixed use properties.
TR 2026/1 also clarifies that the availability of deductions depends on actual use and purpose, and the mere fact that a holiday home is advertised for rent is not sufficient, of itself, to establish that the property is used (or held for use) mainly to produce assessable income.
Transitional compliance approach
The Commissioner will not devote compliance resources to reviewing whether section 26-50 applies to expenses incurred in relation to holiday homes that are rental properties, if the expenses are incurred before 1 July 2026.
Date of effect
TR 2026/1 applies to years of income commencing both before and after its date of issue, subject to the transitional compliance approach.
TR 2026/1 Income tax: rental property income and deductions for individuals who are not in business
