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New ATO Rental Property Guidance

New ATO Rental Property Guidance – What You Need to Know

Owning a rental property has long been seen as a reliable way to build wealth, generate income, and diversify your financial position. As you’ll be aware, however, they do come with additional tax obligations. In November 2025, the Australian Taxation Office (ATO) released Draft Taxation Ruling TR 2025/D1, signalling a significant shift in how rental income and deductions are assessed for individuals who are not carrying on a rental property business.

This new draft ruling replaces the long-standing IT 2167, modernising the ATO’s approach to reflect current investment behaviours, the growth of short-term accommodation platforms, and ongoing compliance concerns. For many rental property owners, this guidance has real implications for how income is declared and expenses claimed, as well as how closely the ATO may scrutinise property arrangements going forward. Understanding what has changed, and what actions you may need to take, is critical to protecting your investment returns and avoiding unexpected tax issues.

What Is TR 2025/D1 and Why Has It Been Introduced?

TR 2025/D1 is the ATO’s updated guidance on how rental income and deductions should be treated for individuals who own rental properties but are not considered to be operating a business. While the principles of declaring income and claiming deductions remain familiar, the ruling provides greater clarity around grey areas that have historically caused confusion or inconsistent compliance.

The ATO’s objectives are clear. The ruling aims to better define what constitutes assessable rental income, clarify when deductions are genuinely allowable, and address compliance risks, particularly where properties are used for a mix of private enjoyment and income generation. The rapid growth of holiday homes and short-term rental platforms has blurred the lines between lifestyle assets and genuine income-producing investments, and this ruling seeks to draw those lines more clearly.

For rental property owners, the key message is that intention, behaviour, and evidence now matter more than ever. The ATO is looking beyond labels and focusing on how a property is actually used throughout the year.

All Rental Income Must Be Declared

One of the most explicit messages in TR 2025/D1 is that all forms of rental income must be declared. This includes income from traditional long-term leases, short-term stays, and even discounted rental arrangements. If you receive payment in return for granting someone the right to occupy your property, the ATO will generally expect that income to be reported.

Importantly, the ruling clarifies that rent charged to friends or family members is still assessable income if the arrangement is commercial in nature. Charging below-market rent does not remove the requirement to declare the income, although it may affect the deductions you can claim. There are limited exceptions, such as board paid by a child living at home, but these situations are narrow and fact-specific.

For property owners who have previously taken a casual or inconsistent approach to declaring rental income — particularly for short stays — this ruling reinforces that transparency is essential.

Stricter Rules for Holiday Homes and Short-Term Rentals

Holiday homes and short-term rentals are a major focus of the new guidance. Where a property is used primarily for private purposes, the ATO has made it clear that ownership costs such as interest, council rates, and general maintenance may not be deductible, even if the property is occasionally rented out.

The ATO will assess a range of factors to determine whether a property is genuinely available for rent. These include the proportion of days rented versus days used privately, whether the property is made available during peak demand periods, and whether the asking price reflects market rates. Properties that are blocked out for personal use during high-demand periods, or priced unrealistically to discourage bookings, risk being classified as lifestyle assets rather than income-producing investments.

This represents a tightening of the rules and increases the importance of demonstrating genuine commercial intent. Simply listing a property online is no longer sufficient if your actions suggest that rental income is secondary to personal enjoyment.

Apportionment of Expenses for Mixed-Use Properties

For properties that have both private and rental use, accurate apportionment of expenses is essential. TR 2025/D1 reinforces that deductions must be directly linked to earning rental income. Expenses such as advertising costs, agent fees, cleaning between tenants, and utilities incurred during rental periods are generally deductible, but only to the extent they relate to income-producing use.

Private or domestic costs remain non-deductible, even if the property is rented at other times of the year. Blanket claims or estimates are unlikely to withstand ATO scrutiny. Instead, owners should expect to substantiate claims based on actual usage patterns and documented evidence.

This approach places greater emphasis on recordkeeping and reinforces the need for rental property owners to treat their tax reporting with the same discipline as any other investment activity.

Practical Implications for Rental Property Owners

From a practical perspective, the changes introduced by TR 2025/D1 mean that recordkeeping has never been more important. Detailed logs of rental availability, bookings, cancellations, and private use will play a critical role in supporting your tax position. Without clear evidence, deductions may be challenged or denied.

Property owners should also review pricing and availability to ensure properties are genuinely offered at market rates and during peak periods where appropriate. High levels of private use or rental practices that appear artificial will increase audit risk. The ATO has made it clear that properties treated more like holiday homes than investments will attract closer scrutiny.

Taking the time now to review your arrangements can help you avoid disputes later and ensure your investment strategy remains tax-effective.

New ATO Rental Property Guidance – Why This Matters and What to Do Next

The ATO’s updated guidance reflects a broader push to improve fairness and consistency across the tax system. For rental property owners, this is a clear signal that historic assumptions may no longer hold, particularly where private enjoyment and income generation overlap. Now is the time to review your rental property arrangements, assess whether your income and deductions align with the new guidance, and seek advice where there is uncertainty. Acting early can help protect your cash flow, reduce audit risk, and ensure you remain compliant as the ruling is finalised.

If you would like assistance reviewing your rental property position or understanding how TR 2025/D1 applies to your circumstances, the Tax Consulting team at McKinley Plowman is here to help. Please contact us on (08) 9301 2200 or visit our website to arrange a discussion.

For a detailed technical view of the draft ruling, please click here.

written by:

Dean Birch

With close to two decades of experience in tax consulting across Australia and the United Kingdom, Dean Birch is a highly regarded tax specialist known for his ability to interpret complex legislation and translate it into practical, commercial outcomes for clients. His career spans public practice, large corporate environments and hands-on management roles, giving him a well-rounded understanding of both technical tax issues and real-world business challenges.

Dean specialises in providing tax advisory services to corporate entities, government agencies, not-for-profit organisations, Aboriginal corporations and small to medium enterprises. His areas of expertise include income tax, indirect taxes, employment taxes, Fringe Benefits Tax, GST, capital gains tax, salary packaging, fuel tax credits, PAYG and superannuation guarantee matters. He is particularly valued for his pragmatic approach and his ability to deliver clear, workable solutions in highly regulated and complex environments.

Having spent more than 15 years in senior management roles within a multinational organisation in the UK, Dean brings strong commercial insight to his advisory work. This experience enables him to look beyond compliance and focus on how tax outcomes support broader operational and strategic objectives.

Committed to delivering high-quality advice and supporting the broader advisory team, Dean plays an active role in technical training and mentoring. He is known for his practical mindset, clear communication style and collaborative approach, all of which align strongly with McKinley Plowman’s commitment to delivering thoughtful, client-focused advice.

Outside of work, Dean has a wide range of interests. He’s a classic car enthusiast and proudly owns a Triumph Spitfire back in the UK, though he admits it’s getting far less road time since he moved to Australia! A long-time Nottingham Forest supporter, Dean continues to cheer them on from afar (no matter how nerve-wracking the season gets). When he’s not following the football, you’ll often find him exploring new places, enjoying good coffee, or catching up with friends.