A new draft ruling from the Australian Taxation Office (ATO) — formally known as TR 2025/D1 — could significantly limit the deductions that holiday-home owners can claim, and understanding the ATO holiday home tax rules has never been more important.

The central issue is classification: whether a property is genuinely held to produce rental income, or whether it is primarily a private holiday home with incidental rental activity.

Under TR 2025/D1, expenses directly related to earning rent — such as advertising, cleaning, and operational costs — will remain deductible for many owners.

Meanwhile, ownership-level expenses (council rates, insurance, mortgage interest, land tax, depreciation, repairs, and maintenance) become deductible only if the property is mainly an income-producing asset, not a place of private enjoyment. This distinction is grounded in the ATO’s interpretation of section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997), which requires that deductions be incurred in gaining or producing assessable income.

And crucially, it is now the owner’s responsibility to prove this purpose.

Proving That the Property Is Primarily for Income

The ATO now requires owners to demonstrate that the overriding purpose of holding the property is to generate rental income. For holiday home tax purposes, some private use is still permitted, but the overall pattern of behaviour must clearly show commercial intent. If a property is accepted as mainly income-producing, normal apportionment rules apply — all rental expenses must be split to exclude private-use periods, consistent with the approach in Taxation Ruling TR 93/32.

But determining whether a property qualifies as “mainly income-producing” under the ATO’s holiday home tax framework has changed substantially.

What the ATO Will Examine

The key is what the ATO considers to be “mainly income-producing” under TR 2025/D1, which may not be as simple as proving the holiday home is available to rent at least 50% of the year.

Instead, the ATO will look at a pattern of behaviour, including:

Peak Period Behaviour

• Was the property genuinely available to rent during Christmas, New Year, Easter, or school holidays?
• Or were these high-demand periods blocked out for personal use?

Commercial Rental Behaviour

• Are enquiries responded to promptly?
• Are you actively advertising the property?
• Are you unintentionally discouraging guests (e.g., mentioning remoteness or poor phone reception)?

Commercial Suitability

• Is the entire property available to guests?
• Are you charging realistic market rent?
• Do restrictive conditions (no kids, no pets, limited facilities) deter bookings?
• Does the location or lack of amenities reduce genuine rental prospects?

The ATO has also indicated it will draw on the Full Federal Court’s reasoning in cases such as Macainsh v FCT when assessing whether a property is genuinely income-producing or primarily held for private enjoyment. All of these factors help the ATO determine whether your property was truly held for income or simply “made available” in theory.

When the New ATO Holiday Home Tax Rules Apply

TR 2025/D1 states:

• Applies from: 12 November 2025
• Grandfathering: Arrangements in place before this date are protected until 1 July 2026

This means many owners will fall under the new holiday home tax rules earlier than expected, even before the draft becomes final. Once finalised, TR 2025/D1 will replace the ATO’s previous guidance on this topic and represent the definitive position on holiday home deductibility.

What Holiday-Home Owners Should Do Now

The ATO’s message is clear: if you want ownership-cost deductions under the holiday home tax rules, you must operate your property like a genuine commercial business.

Owners should review:

• Pricing to ensure it reflects market rates
• Restrictions that may limit guest interest
• Availability during peak demand periods
• Responsiveness to enquiries
• Full property access for guests
• Documentation showing genuine efforts to maximise rental income

Importantly, owners should also maintain records that would satisfy the substantiation requirements under Division 900 of the ITAA 1997 — including booking histories, advertising activity, correspondence with guests, and evidence of market-rate pricing.

If you enjoy using your holiday home privately, now is the time to speak with your accountant to determine whether the property truly meets the ATO’s criteria for being “genuinely available for rent” under TR 2025/D1.

Our JD Scott + Co team can talk you through the ATO holiday home tax changes and what they mean for your property. Get in contact with us today.

The Australian Taxation Office (ATO) has formally announced a renewed focus on businesses using cash to avoid tax and employer obligations. In a recent media release, the ATO made clear that under-reporting cash income or paying workers off the books is a compliance priority for 2026.

For small businesses (particularly those operating in cash-heavy industries like food service, retail and trades), this is a great reminder to review systems and reporting processes.

What Conduct Is Under Scrutiny?

According to the ATO, businesses using cash to hide activity may:

• Fail to report all sales transactions or issue receipts;

• Fail to pay GST, income tax or PAYG withholding;

• Avoid super guarantee, insurance and WorkCover obligations;

• Report income below the $75,000 GST threshold to avoid registration;

• Exploit workers by ignoring award conditions; and

• Undercut compliant competitors by offering cheaper “cash prices”.

The ATO is explicit that this isn’t an accounting error: “Keeping such transactions ‘off the books’ is not a mistake – it’s a deliberate action that affects everyone.” (ATO, 9 February 2026).

The tax office also notes that these practices undermine the integrity of the tax system and distort fair competition by giving non-compliant businesses an unfair advantage.

Why the ATO Is Focusing on Cash

The ATO confirmed it is using “sophisticated data and analytics” and conducting joint operations across government agencies to detect businesses deliberately avoiding obligations.

Common detection methods include:

• Data matching of bank deposits;

• Industry benchmarking;

• Review of GST registration patterns;

• Cross-agency intelligence; and

• Community tip-offs.

The ATO also reminds businesses that registration for GST is mandatory once annual turnover has reached or is expected to reach the $75,000 GST threshold.

The Risks of Cash In Hand Arrangements

The media release also highlights that paying workers cash in hand exposes both the business and the worker to risk.

Workers paid using cash in hand may:

• Miss out on paid leave and sick leave;

• Receive below-award wages;

• Face year-end tax liabilities where PAYG was not withheld;

• Miss super contributions; and

• Lack WorkCover protection.

As the ATO notes: “These practices can lead to serious consequences, including penalties, audits and reputational damage.” (ATO, 9 February 2026).

Example: Unreported Cash Income

The ATO included a case study involving a Brisbane pizza shop operating largely on a cash basis. Following an audit triggered by a community tip-off, the ATO found approximately:

• $140,000 in unreported income; and

• $80,000 in expenses claimed without proof.

The ATO treated the conduct as intentional and issued:

• GST adjustments resulting in a shortfall exceeding $17,400;

• A 75% penalty for intentional disregard;

• A further 20% uplift on the GST shortfall; and

• A shortfall penalty exceeding $38,000 for false and misleading statements.

(ATO, 9 February 2026)

The case demonstrates how penalties escalate significantly once behaviour is classified as intentional rather than careless

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