Airbnb & Holiday Home Tax Traps
Increased ATO focus on short-term rentals.
What property owners need to know before they list
Wollongong, the South Coast, Southern Highlands and the Sutherland Shire are popular lifestyle destinations and prime locations for short-term rentals. For many property owners, listing a holiday home on Airbnb or similar platforms seems like an easy way to generate extra income while still enjoying the property personally.
However, the tax rules around holiday homes and short-term rentals are tightening, and the ATO has made it clear that this is an area under increased scrutiny. Property owners who misunderstand or stretch the rules risk denied deductions, amended assessments and unexpected tax bills.
Why the ATO is paying closer attention
The ATO has identified widespread over-claiming of deductions on holiday homes that are predominantly used for private purposes. In response, updated guidance draws a firm line between:
- Genuine income-producing short-term rental businesses, and
- Private holiday homes that are only occasionally rented out
The key principle is simple but often misunderstood:
Deductions are only available when the property is mainly used to produce assessable income.
Importantly, “mainly” does not simply mean counting the number of weeks rented versus used privately. The ATO looks at how the property is made available, when it is available, and whether the rental activity is genuinely commercial.
What the ATO considers a red flag
The ATO has outlined several indicators that suggest a holiday home may not be genuinely income-producing. These include:
- Overpricing the property so it is unlikely to be booked
- Blocking out peak periods, such as school holidays, long weekends and summer
- Restrictive booking conditions, such as refusing weekend stays or requiring long minimum stays during off-peak periods
- Advertising that appears tokenistic rather than aimed at attracting real bookings
If a property is structured in a way that discourages tenants, the ATO may conclude that the main purpose is private use rather than earning income and there for not eligible to claim deductions.
What genuine commercial activity looks like
The ATO expects a genuine short-term rental operation to show clear commercial intent. This typically includes:
- Market-based pricing comparable to similar local properties
- Availability during high-demand periods, not just quiet times
- Consistent advertising on public platforms
- A willingness to accept reasonable bookings
- Thorough record-keeping, including booking calendars, enquiries, rejected requests, invoices and maintenance records
These factors help demonstrate that the property is genuinely being operated to produce income, not simply listed “on paper.”
Record-keeping and long-term tax consequences
If you claim deductions for a holiday home, you must be able to substantiate that the property was genuinely available for rent during the periods claimed. This goes beyond just keeping Airbnb statements.
It’s also important to remember that earning rental income can have capital gains tax (CGT) implications, even for properties that were once your main residence. This means records may need to be retained for the entire period of ownership.
Get advice before you list
Holiday home tax rules are nuanced, and mistakes are easy to make, especially when private use and rental use overlap. Before listing your property, it’s worth getting tailored advice to ensure your structure, pricing and record-keeping align with ATO expectations.
At Cashflow Financial, we can assist property owners across Wollongong and the Sutherland Shire no matter where their properties are and navigate the tax and record-keeping complexities of short-term rentals and holiday homes before small issues become costly problems.
If you’re considering listing a property, or already have one listed, now is the time to review your position. Contact us today and let us make the process easier for you.