As December approaches, many holiday-home owners are already looking at the calendar for their beach house. This year, however, there is more to consider than booking dates. Two sets of changes have recently landed at once: the ATO’s finalised guidance on holiday home deductions and the Federal Budget’s negative gearing reforms. For high-income earners who have long paired high marginal rates with negatively geared property, the combined effect could materially change the tax outcomes of holding a holiday home.
What has the ATO changed?
In May the ATO finalised Taxation Ruling TR 2026/1 and two compliance guidelines, PCG 2026/2 and PCG 2026/3, replacing IT 2167, its rental property ruling since 1985. The transitional period ended on 1 July 2026.
The new framework introduces a gateway test before you ever reach apportionment. A holiday home you also use privately is treated as a ‘leisure facility’ under section 26-50, and unless it is used, or held, mainly to produce rental income, the ownership costs like interest, council rates, land tax, insurance and maintenance are denied altogether. Costs tied directly to the letting, such as advertising and agent fees, remain deductible and the rent stays assessable either way.
PCG 2026/3 sets out a green amber–red risk framework. Several common holiday-home arrangements may increase a property’s risk rating, particularly where the property is unavailable during peak periods such as Christmas and school holidays, priced above market to limit bookings, restricted from families or pets, or let primarily to friends at reduced rates. Simply listing the property online is no longer enough. The ATO looks at how widely it is advertised, whether the rent is at market and whether enquiries are actively followed up and turned into bookings.
What happened to negative gearing?
Negative gearing allows investors to offset a rental loss against other income, so a doctor on the top marginal rate of 47 per cent has effectively had the tax system fund nearly half that loss. The Budget changed the rules for established residential properties purchased after 7:30 pm on 12 May 2026.
From 1 July 2027 those losses will be quarantined, deductible only against income and capital gains from residential property, not against practice income or salary. Properties held or under contract at Budget night are grandfathered until sold, while eligible new builds remain exempt, and commercial property is untouched. William Buck’s Federal Budget analysis on negative gearing sets out the detail.
How do the two regimes interact?
Consider Sarah, a Perth GP who bought an established house in Dunsborough in 2019 with substantial debt. Holding costs run to about $70,000 a year, it earns $25,000 in rent outside summer, and the family uses it for four weeks over Christmas.
Under the old rules she would apportion for the four private weeks, claim close to $64,000, and the resulting $39,000 loss saved her around $18,000 in tax. Four weeks of private use cost her four weeks’ worth of deductions, and nothing more.
The new rules do not work proportionally. Reserving the peak season goes to the heart of whether the property is mainly held to produce rent. If the answer is no, section 26-50 denies the holding costs in full, while the rent remains assessable.
Her 2019 purchase is grandfathered for negative gearing. That preserves the right to offset a loss against other income, but it does not preserve the deductions that create the loss in the first place.
Had she bought the same property today, any surviving loss would also be quarantined away from her practice income from 1 July 2027 and can be offset only against residential property income and capital gains.
What should you do before December?
- Review the booking calendar now. Peak-season availability is one of the strongest factors supporting a claim that the property is held mainly for rent.
- Advertise broadly at market rates, respond to enquiries, and keep the evidence: listings, correspondence and occupancy records.
- If the property qualifies, apportion for private use under PCG 2026/2, and keep records of denied holding costs, which can still be added to the CGT cost base.
- If you have used the holiday-home over peak season, satisfying the s 26-50(3) exception requires a real change in use, not a superficial one. Charging your family a market rent while using the house yourself or listing the property then declining peak-season bookings should be avoided.
Where does this leave practice owners?
These changes are a timely reminder for practice owners to revisit their long-term wealth accumulation strategy. As the tax advantages of holiday homes narrow, it may be worth considering assets that remain outside both regimes.
Commercial property is unaffected by both regimes, and practice owners hold an advantage most investors do not: a quality tenant they are familiar with. A strategy commonly used by successful practice owners is to build the practice, sell the clinic business to a corporate buyer or incoming practitioners and retain the freehold on a long lease to fund retirement. Sale-ready financials, clean service-entity arrangements, lease terms that withstand due diligence and a defensible valuation take time to prepare and are rarely assembled at short notice.
William Buck’s Health specialists and Corporate Finance team advise practice owners on both the immediate holiday-home review and the longer-term structuring of clinic and property interests. Timing and asset choice now carry real consequences, so if your strategy was framed under the previous rules, speak with your local William Buck advisor to start the conversation.
