The ATO is now applying existing tax rules to holiday homes and short-term rentals in a much more active way. The key question is whether the property is being used mainly to produce assessable income.

If the ATO determines that a property is primarily being held for private enjoyment or recreation, deductions for many ongoing ownership costs could be denied. This may include:

• Interest on investment loans
• Council and water rates
• Land tax
• Insurance
• Repairs and maintenance
• Depreciation and capital works deductions
• Strata or body corporate fees

Some direct rental expenses, such as Airbnb commissions, platform fees, advertising and cleaning costs, generally remain deductible.

One of the most significant changes is the way the ATO is assessing how a property is being used.

Rather than focusing solely on how many days the property is rented each year, the ATO is taking a broader view. In particular, it's paying attention to whether owners are reserving peak demand periods for themselves while making the property available to paying guests during quieter times.

For example, a property that is available for rent year-round and only used privately for an occasional off-peak stay may be viewed more favourably than a property where the owner blocks out Christmas, Easter, school holidays and long weekends for personal use.  

In other words, it's not just about how often the property is rented. It's about whether the property is genuinely being operated as an income-producing investment.

Property owners may face a greater risk if they:

• Primarily use the property as a family holiday home
• Reserve high-demand periods for personal use
• Receive relatively few rental bookings
• Regularly decline booking requests

These situations may indicate that the property is not being used mainly to generate income, which could affect the deductions available.

If ownership costs are denied under the new approach, they aren't necessarily lost forever.

The ATO's guidance indicates that these costs can generally be added to the property's capital gains tax cost base. This may help reduce the capital gain when the property is eventually sold, provided appropriate records are maintained.

If you own a holiday home, Airbnb property or short-term rental, now is a good time to review how the property is being used and whether your records support your position.

Booking histories, availability calendars, pricing records and personal-use logs may all play an important role if the ATO reviews your claims.