The ATO have released a Draft PCG 2025/D6 which sets out methodologies that the Commissioner will accept as fair and reasonable to apportion expenses that relate to a holiday home that is used to produce rental income and also held for personal use as well. When taxpayers have a dual purpose for their holiday home, deductions can be apportioned on the percentage of days the property is available to rent on commercial terms during the year or based on the percentage of floor space made solely available to the tenant.
The Draft PCG 2025/D7 however sets out a stricter interpretation where the above apportionment for deductions will only be available to taxpayers whose holiday home is mainly used to produce assessable income, otherwise all deductions will be denied.
The ATO have provide risk ratings for taxpayers with no single factor being decisive, however the more behaviours within the green zone the more likely tax deductions remain available using one of the apportionment approaches provided above.
|
Risk zone |
Behaviour |
|
Green zone Low risk |
Factors pointing to high income producing usage: ¡ high levels of income-producing occupancy, particularly around peak holiday season ¡ limited personal or other non-commercial use of property ¡ prioritising deriving income from property over other purposes ¡ commercial terms for renting out property and attempts to maximise income |
|
Amber zone Medium risk |
Factors that point to lower commercial exploitation: ¡ increased personal use of property by taxpayer and friends (< market rates) ¡ forgoing income generation from property so it is available for personal use ¡ using property for personal non‑income-producing use in peak periods ¡ limited attempts to exploit property to gain rents etc |
|
Red zone High risk |
Little or no commercial exploitation of property to produce income: ¡ prioritising personal use ¡ limited attempts to rent out property ¡ major features of property are inaccessible even or unreasonable restrictions ¡ limited to no attempt to increase occupancy ¡ advertising the property at a price above the market rate. |
If you have a holiday home that is rented and used personally, please feel free to contact our office to discuss the implications.
