The biggest development for rental property owners this year is the finalisation of Taxation Ruling TR 2026/1 — the ATO's most comprehensive public guidance on rental property income and deductions in years.
The ruling covers:
If you own a holiday home or short-term rental, this ruling directly affects you. See the Holiday Homes section below.
The interest on your investment loan is typically your biggest deduction — and it's fully claimable. This is the cornerstone of negative gearing. Important: only the interest portion is deductible, not the principal repayments. If you've redrawn on your loan for personal purposes, only the portion used for the rental property remains deductible.
If you use a property manager, every fee they charge is deductible — from finding tenants and collecting rent to handling maintenance calls and inspections. Advertising costs to find tenants are also fully claimable.
General repairs to restore your property to its original condition are immediately deductible. Think: fixing a leaking tap, replacing broken tiles, repairing a fence damaged in a storm.
Critical distinction: Improvements and upgrades are NOT immediately deductible — they must be depreciated over time. Replacing a worn carpet with new carpet is a repair. Ripping out the kitchen and putting in a new one is a capital improvement.
There are two types of depreciation, and both are worth claiming:
To claim depreciation properly, you need a Quantity Surveyor's depreciation schedule. This is a one-off cost that pays for itself many times over — and the fee itself is tax deductible. If you haven't had one done, you could be missing thousands of dollars every year.
This is where things have changed significantly in 2026. The ATO has finalised PCG 2026/3, which specifically targets holiday homes.
Under the new guidance, if your holiday home is mainly used for your own holidays or recreation — particularly during peak demand periods — it may be classified as a "leisure facility." This classification can result in deductions being denied entirely, including mortgage interest, council rates, and land tax.
The key test: Is your property genuinely held mainly to produce rental income? If you're blocking out the school holidays, Christmas, Easter, and long weekends for personal use — and only renting it out in the quiet shoulder season — the ATO may conclude that income production is not the main purpose.
What this means practically:
Transitional period: The ATO has indicated it will not actively review arrangements for expenses incurred before 1 July 2026 under arrangements that existed before 12 November 2025. However, from the 2026–27 year onwards, full compliance is expected.
If you own a holiday home, now is the time to review your arrangement with a registered tax agent.
For 2025–26, negative gearing continues to apply in full. If your rental expenses exceed your rental income, that loss can be offset against your other income (salary, wages, business income) — reducing your overall tax bill.
However, the 2026–27 Federal Budget announced proposed changes to negative gearing and capital gains tax, intended to apply from 1 July 2027:
Important: These changes are proposed and not yet legislated. They do not affect your 2025–26 return. But if you're making investment decisions now, they're worth factoring in. Speak to us before acting.
If your rental property is only available for rent for part of the year — or is used partly for private purposes — you must apportion your deductions accordingly. The ATO has issued PCG 2026/2 specifically covering how to apportion fairly.
The basic rule: expenses can only be claimed for the period the property was rented or genuinely available for rent at a market rate. Vacant periods where you're advertising at market rent are fine. Periods blocked for personal use are not.
Example: If your property was available for rent for 45 weeks and used personally for 7, you can claim approximately 87% of your eligible expenses.
The ATO requires you to keep rental property records for at least five years after lodging the return they relate to. Good records are your best protection if questioned.
Keep records of:
Digital records are fine — consider using a folder system in cloud storage or accounting software to stay organised throughout the year.
The ATO's own data shows 9 out of 10 rental property owners make errors in their returns. Common mistakes include:
Since January 2024, platforms like Airbnb, Booking.com, and Stayz report your income directly to the ATO under the Sharing Economy Reporting Regime. There's no room for underreporting.
Rental property tax is one of the most complex areas of individual tax — and with the ATO's new rulings in force, getting it wrong is more costly than ever. Our team understands the North Coast property market and stays current with every rule change so you don't have to.
Whether you have one investment property or a growing portfolio, we'll make sure you're claiming everything you're entitled to — and nothing you're not.
Book your appointment with North Coast Accounting today.
This blog is general information only and does not constitute tax advice. Deductibility depends on your individual circumstances and how your property is used. For personalised advice specific to your situation, speak with a tax specialist at North Coast Accounting
Take the next step
Book your free, no-obligation consultation and take the first step towards smarter tax planning, better business decisions and long-term financial success.