The ATO has holiday homeowners in its sights

The article is relevant to members in Australia and was current at the time of publication.

A series of regulatory changes are set to impact practitioners and clients over the coming months, and right now is a good time to start preparing for them.

They include a crackdown by the Australian Taxation Office (ATO) on expense deductions associated with rental properties, particularly holiday homes, and the impending introduction of Payday Super.

Separately, from 1 July 2026 many services traditionally provided by accountants, defined in the legislation as “professional services”, will become “designated services” for anti-money laundering and counter-terrorism financing (AML/CTF) purposes. 

Entities providing these designated professional services will be brought into the AML/CTF regime and will have AML/CTF reporting obligations.

Holiday homes and expenses

The ATO is toughening its approach to deductions related to properties used for both personal and rental purposes, such as holiday homes. 

The regulator has issued a draft taxation ruling (TR 2025/D1) outlining that losses and outgoings on properties used for personal and rental income purposes will need to be apportioned on a “fair and reasonable” basis to work out how a deduction can be claimed under section 8.1 of the Income Tax Assessment Act 1997 (Tax Act).

The ruling details different methods of apportionment based on the time a property is held to produce income on commercial terms throughout the financial year, and an area-based method when only part of a property is used to produce income (see Draft PCG 2025/D6).

Where the ATO deems that a property is mostly used as a holiday home rather than for legitimate rental activities, it will apply section 26.50 of the Tax Act to classify the property as a “leisure facility” (see Draft PCG 2025/D7). 

This means that expenses such as mortgage interest, council rates, land tax and maintenance cannot be claimed, and the only allowable deductions will be for cleaning expenses, advertising and agent platform fees.

“The ATO has been increasingly concerned about the overclaiming of rental expenses by people who have properties, in particular, holiday homes,” says CPA Australia’s Tax Technical Adviser, Bill Leung. “In their audits, they keep seeing people overclaiming, and effectively these properties, especially holiday homes, are recording perpetual losses once all the expenses are deducted.”

Leung says the ATO is scrutinising activities where properties listed for rent are deliberately blocked out by the owners during peak periods of the year, so they or their families can use them for their own holidays.

“What the ATO is saying is that if you basically have a mixed bag purpose and you’ve got that personal usage, and the property is not really mainly used for rental purpose, it is going to apply section 26.50 to you.”

Leung says it is important for practitioners to understand how the rules operate and inform their clients accordingly to ensure they are not targeted by the ATO.

AML/CTF new services and entities

From 1 July 2026, accountants, as well as trust and company service providers, classified as “Tranche 2 entities” by AUSTRAC (Australian Transaction Reports and Analysis Centre) will be subject to AML/CTF reporting obligations.

AUSTRAC lists a range of designated services where AML/CTF reporting obligations apply, including “assisting in the planning or execution of the creation or restructuring a body corporate or legal arrangement” and “providing a registered office address or principal place of business address of a body corporate or legal arrangement”.

Practitioners providing any designated services will be required to enrol with AUSTRAC and meet their AML/CTF obligations.

They will also need to conduct initial customer due diligence (Know Your Customer) steps before providing a designated service.

CPA Australia’s Regulations and Standards Adviser, Neville Birthisel FCPA, says the new regulations are likely to prove challenging for smaller accounting practices that do not have systems in place to meet these new reporting obligations.

“They’re now taking on the similar role that banks, casinos and other large reporting entities have had to deal with since the introduction of the legislation,” he says.

Birthisel says AUSTRAC guidance is not focused on accounting advice but rather events, transactions and actions that may facilitate money laundering and terrorism financing.

“What practitioners should do now is to use the resources on the AUSTRAC website, which will give you an indication of whether the obligations apply to you.”

If the regulations do apply to your practice, you should scrutinise the services you offer for red flags.  “For example, providing your address as the registered address of your client is a designated service that brings you into the regime,” Birthisel notes.

“There are resources coming from AUSTRAC, and they’re going to land early next year, but don’t wait for those. There’s already a lot of guidance on AUSTRAC’s website and also on CPA Australia’s website. Seek them out and gain an understanding of your obligations as a reporting entity.”

Payday Super

The introduction of Payday Super from 1 July 2026 will have implications for practitioners as well as clients who are employers. 

Richard Webb, Superannuation Lead at CPA Australia, says all businesses should be preparing now by understanding the payroll systems they are using and the limitations of those systems.

“For example, businesses need to know how long the clearinghouse process will take and whether their payroll system can receive error messages. We expect these will increase and it will be up to businesses to make sure they’re able to action those error messages as soon as possible to make sure they reduce any penalties on any late payments because of those errors.”

Webb notes that the 250,000 businesses currently using the free Small Business Superannuation Clearinghouse service provided by the ATO should be aware it will be shut down from 1 July 2026.

“The bottom line is that employers must ensure their super contributions reach the relevant super fund and that the fund processes them successfully within seven business days.

They’re essentially responsible for making sure all the links in that chain are functioning properly and doing the job in the timeframe available.”

Webb says practitioners should be reaching out to their employer clients to make sure they are aware of the impending changes.

“There may be some overlap at the beginning, because at the same time as complying with the new payday regime, they may still be making super payments under the existing regime.

“This means that there could potentially be a cash flow squeeze and businesses need to be aware of that. So, it’s probably good for them to start thinking now about whether they need to have some kind of line of credit or cash reservoir to cover any short dip in liquidity.”