Depreciation on a holiday home
A holiday home can qualify for tax depreciation just like any other investment property — but the ATO applies stricter scrutiny to holiday properties because many owners overclaim by ignoring periods of private use.
When depreciation applies
Depreciation is available when your holiday home is:
- Actually rented out to paying guests
- Genuinely listed and available for rent at market rates when not in use
Calculating the deductible proportion
If you use the holiday home personally (including family holidays) for some of the year, you must apportion all deductions — including depreciation — based on the rental use proportion.
Example:
- Rented to guests: 100 days
- Available for rent but unoccupied: 150 days (genuinely listed)
- Used personally: 60 days
- Not available (off-market): 55 days
What the ATO looks for in holiday properties
The ATO has published specific guidance on holiday rentals (PCG 2021/4 and earlier Tax Ruling TR 93/32). It focuses on:
- Whether the property is listed at realistic market rates
- Whether bookings are actively sought
- Whether "available" days are genuinely available (no hidden blocks)
- Whether private use is declared accurately
Division 40: second-hand restrictions
For holiday homes purchased second-hand after 9 May 2017, the residential plant and equipment restriction may apply. This is complex — some short-term rental properties are treated as commercial (especially if managed by a professional operator) while others are treated as residential. Always get a professional assessment.
Division 43 capital works
Division 43 applies to the building structure regardless of the second-hand restriction. On a post-1985 holiday home, you can claim capital works at 2.5% per year on the eligible construction costs.