The ATO has issued a draft tax ruling and some practical compliance guidelines dealing with rental property income and deductions for individuals. As well as refreshing and modernising some existing guidance, the new materials suggest that the ATO is seeking to apply a specific integrity rule to prevent certain deductions from being claimed in connection with holiday homes, even if they are used to produce income. This will come as a surprise to many practitioners and their clients.
The ATO has also provided a new 7-step methodology that can be used to calculate electricity costs for home charging plug-in hybrid electric vehicles that run on both electricity and petrol/fuel. Until now, the PCG only covered fully electric vehicles.
As the festive season approaches, the ATO is also reminding taxpayers about the potential FBT implications of end-of-year employee celebrations and gifts.
Change is a constant for the profession. The Knowledge Shop membership can help you and your team keep ahead of change with an advisers' help desk, workpaper knowledge base, quarterly PD, and more - wherever you are and however you are working. Book in a time for a tour or call the Knowledge Shop team on 1300 378 950.
Inside this month, Ann Dai (Tax Adviser), Michael Carruthers (Tax Director) and Amy Yan (Associate Tax Director) bring you:
The ATO has issued a draft PCG 2025/D6 which sets out the ATO’s compliance approach in relation to the apportionment of rental property deductions where a property is used partly for income-producing purposes and partly for another purpose.
In cases where part of a dwelling is rented out, while the remainder is occupied by the owner, deductions for losses and outgoings must be allocated on a ‘fair and reasonable’ basis to determine the amount allowable under s 8-1 of the ITAA 1997.
The draft guideline sets out the methodologies the Commissioner considers acceptable in common scenarios that are considered ‘fair and reasonable’ i.e. time-based method, area-based method or a combination.
While individuals may adopt an alternative apportionment method, doing so places them outside the protection of the guideline and requires them to substantiate why their chosen method satisfies the “fair and reasonable” standard in their circumstances.
their rental property, including short-term rentals or letting out a room of their home etc.
The draft ruling looks at:
While in many respects the draft ruling modernises and refreshes existing guidance, the ATO’s focus on the leisure facility rules in section 26-50 will come as a shock to many clients who hold holiday homes and use them to derive some income during the year.
If a client holds a holiday home and it isn’t used / held mainly to derive assessable income during the year then the rules in section 26-50 can prevent the following expenses from being deductible, even if the property is used sometimes to produce assessable income:
The ATO acknowledges that its views on section 26-50 haven’t previously been publicly expressed in relation to rental properties. Also, taxpayers might have entered into arrangements that are caught by section 26-50 without realising this. As a result, the ATO indicates that won’t devote compliance resources to review whether section 26-50 could apply to expenses incurred before 1 July 2026 on holiday homes that are rental properties, if the expenses were incurred under an arrangement entered into before 12 November 2025.
The draft ruling replaces IT 2167 Income Tax: Rental properties – non-economic rental, holiday home, share of residence, etc. cases, family trust cases, which was withdrawn on 12 November 2025.
The ATO has issued a draft update to GSTR 2012/6 with specific guidance on how the GST provisions apply to contemporary build-to-rent (BTR) developments when assessing whether the premises would be classified as ‘commercial residential premises’.
GSTR 2012/6 explains how to determine whether a property should be classified as commercial residential premises for GST purposes. Supplies of commercial residential premises are normally subject to GST if the supplier is registered for GST.
The draft update introduces a new example involving a modern BTR development, concluding that such developments typically constitute input-taxed supplies of accommodation in ‘normal’ residential premises, rather than taxable supplies of commercial residential premises. This distinction turns on the characteristics of BTR accommodation, which is designed for longer-term occupation and does not involve occupants being treated as “guests”.
The draft amendments also provide further clarification around the distinguishing features of hostels and the different statuses of guests versus tenants, assisting taxpayers in determining whether premises should properly be regarded as residential premises or commercial residential premises for GST purposes.
The ATO has issued a taxpayer alert TA 2025/3, in response to an increase in cases where taxpayers have entered into non-recourse or limited recourse borrowing arrangement that is purported to access barter credits from a barter exchange.
The barter credits acquired are purportedly donated to a deductible gift recipient (DGR). The taxpayer is led to believe they can claim an income tax deduction in their tax return for the nominal face value of the donated barter credits.
The ATO raises a number of concerns with these arrangements and has indicated that it will be actively reviewing these arrangements to confirm that participants are applying the tax rules correctly.