In this article
Kooky
Builder of Shaka, the payment router that pays every agent their commission on closing date.
About Kooky and Shaka →Owners of holiday homes that are also let to paying guests enter a new tax year today under a different level of scrutiny. The Australian Taxation Office's Practical Compliance Guideline PCG 2026/3, issued on 20 May 2026, sets out how it will decide whether such a property is really held to earn rent, and the guideline states that the Commissioner will not devote compliance resources to expenses incurred before 1 July 2026. Expenses from today are in scope.
The guideline came with a new ruling, TR 2026/1, issued the same day, which replaces a ruling from 1985. Together they matter along the Queensland coast more than almost anywhere, because the apartment that is a family's holiday place for a few weeks and a short-stay rental for the rest of the year is such a common arrangement here. The first worked example in the guideline is a Gold Coast apartment.
Nothing in the documents changes the law. They explain how the Tax Office reads a provision that has been in the legislation for years, and how it will choose which owners to look at.
ATO, Taxation Ruling TR 2026/1 and Practical Compliance Guideline PCG 2026/3, both issued 20 May 2026.
The rule the Tax Office is applying
The provision is section 26-50 of the Income Tax Assessment Act 1997. It deals with what the law calls leisure facilities, and the guideline treats a holiday home as one of them. Its definition is short: a holiday home is a property used, or held for use, for the owner's holidays or recreation, or for those of family and friends who stay for no rent or at a reduced rate.
Related readForeign buyers of Queensland homes: approval, duty and land tax surchargeFor such a property, section 26-50 denies deductions for the costs of owning and using it unless an exception applies. The exception that matters is that the owner mainly uses the home, or holds it for use, to produce income in the nature of rent.
Everything turns on the word "mainly". TR 2026/1 says it calls for an objective assessment that looks at how the property is actually used, how much of its time is given to earning income, whether it is available in periods of peak demand and whether private use has been reserved. The ruling adds that a simple count of days is not enough on its own. A property advertised for most of the year can still fail the test if the weeks guests most want are the weeks the family keeps.
The ruling's wider subject is rental income and deductions for individuals who are not running a business. It confirms that rent is assessable whether it arrives through an agent, an online platform or directly from a guest, and whether it is charged at a commercial rate or below one.
Green, amber and red
The guideline does not set a number of days that makes a property safe. It sorts arrangements into three zones by their features and says what the Tax Office will do with each.
| Zone | Typical features | What the ATO says it will do |
|---|---|---|
| Green | High occupancy, limited private use, income put first, commercial terms | No compliance resources, beyond confirming the features are present |
| Amber | More private use, rent forgone in desirable periods, limited efforts to let | May apply compliance resources |
| Red | Private use put first, peak periods blocked out, few attempts to let, unreasonable limits on guests | Will attract attention and may be examined as a priority |
ATO, Practical Compliance Guideline PCG 2026/3, issued 20 May 2026. Summary of the zone descriptions.
The factors the guideline weighs are the occupancy achieved in peak holiday periods, the balance of personal and commercial use, the effort put into maximising rent, whether parts of the property are kept from guests and whether the price asked is reasonable.
Related readGross and net rental yield: how Queensland investors measure a returnA zone is a statement about audit risk, not a verdict on the law. An owner in the green zone has still to meet section 26-50; the Tax Office is saying it does not expect to spend time checking. An owner in the red zone has not automatically lost the deductions, but should expect to be asked to show that the property is mainly held to earn rent.
How the examples fall
The eleven examples are where the approach becomes concrete, and they repay reading as pairs.
The Gold Coast example concerns an owner who uses his apartment for four weeks a year, in periods of low demand, while it is highly occupied for the rest of the year. That is green. So is a house in a wine region whose owners take one week in the peak season while the property is otherwise heavily booked through a four-month peak, and a regional property where a planning limit caps letting at 180 days a year but occupancy is high when demand is there.
The amber examples share one feature: the owners keep some of the best weeks. One uses a city apartment for several months, including peak periods, with strong bookings otherwise. Another blocks out a central city apartment for major sporting events. A third stays in a ski chalet for several days each fortnight through the four-month season.
The red examples are properties that are let only at the margins. A beach house in Western Australia is blocked out at Christmas, at Easter and over the summer holidays and is let for about ten weeks a year, with many booking requests refused. A luxury coastal property is let for three or four weeks a year, with some of its features kept from guests. In another, the owners cancel bookings when they clash with their own travel.
Related readInvestors now account for more than 40% of Brisbane home lendingTwo of the examples involve beach houses in the same town, one green and one red. The difference between them is not the location or the type of property. It is who gets the house in January.
Which costs are in question
The deductions at risk are the costs of holding the property, not the costs of letting it. Smart Property Investment, reporting on the guidance on 28 May, listed interest, council and water rates, body corporate fees, capital works deductions and depreciation among the expenses that cannot be claimed where a home fails the test. Costs tied directly to earning the rent, such as advertising, cleaning after a guest's stay and booking fees or commissions, remain deductible.
For an apartment with a mortgage and body corporate levies, the holding costs are usually the bulk of what an owner claims. That is why the question of zone matters more than any single booking.
Passing the test does not make everything deductible either. The same report quoted Jenny Wong, tax lead at CPA Australia, on the point that where a property is used for both rental and private purposes the expenses have to be split between the two. The ATO's general guidance for holiday homes says the same: expenses cannot be claimed for periods of private use, and owners must keep records of when the property was acquired, what it cost and what share each owner holds.
The guidance also describes how peak periods vary. Smart Property Investment's summary gives summer for coastal and resort areas, winter for ski properties, and major events for central city locations. On that reading, the weeks that count most for a unit at Surfers Paradise or Noosa are the school holidays that fill the beaches.
Related readInvestors turn to new builds and yield as 10 August deadline nearsWhy Queensland owners should read it closely
Three local facts make the guidance more relevant here than its national framing suggests.
The first is the type of stock. Much of the short-stay accommodation on the Gold Coast and Sunshine Coast is in apartment buildings, where each lot has a separate owner who decides how it is used.
The second is body corporate law. The Queensland Government's guidance on making by-laws states that a by-law cannot restrict the type of residential use of a residential lot. An owner's decision to let a unit to holidaymakers is therefore not something the other owners in a scheme can simply vote away through a by-law, although nuisance and the use of common property can be regulated.
The third is council regulation in the capital. Brisbane City Council's website says it is not proceeding, at this time, with the short-stay accommodation local law it proposed in 2025, which would have introduced a permit system. The council's explanation is that growth in short-stay platforms has slowed since 2023, that hosts' management has improved and that consultation showed these rentals also house people such as hospital patients and families displaced by insurance claims. It says it will keep working with platforms on problem hosts and enforcing existing local laws.
With no new permit scheme in Brisbane and no power for a body corporate to ban the use outright, the tax rules are, for many Queensland owners, the set of rules that changed this year.
Who the guideline leaves out
The guideline has limits that are easy to miss. It states that it does not apply to individuals who use rental properties in carrying on a business, or to entities that are not individuals. A holiday unit held in a company or a trust is outside it, as is an operator running short-stay accommodation as a business. Those owners are still subject to the law; they simply cannot rely on the zones.
It also has an expiry of sorts. The guideline carries a review date of 20 May 2031.
For the 2025-26 returns that owners are about to prepare, the Tax Office's statement means it will not be using the zone approach to examine holiday home expenses, since those were incurred before today. The first returns squarely within the new approach will be those for 2026-27, lodged from the middle of next year. Between now and then, the bookings calendar an owner keeps, and the weeks marked as unavailable on it, are the record the examples suggest will matter most. How the test applies to one property is a question for a registered tax agent.
Kooky, from Shaka
Kooky edits Queensland Estate and builds Shaka, the payment router he made for Queensland property professionals. One payment comes in, and every agent, agency and party in the deal receives their signed share on closing date.
