ATO Rental Property Deductions: What You Can Claim — and How to Apportion Them Correctly
If you own a rental property, a holiday home, or even rent out a room on Airbnb, there’s one area where the ATO is paying very close attention right now:
How you apportion your rental property deductions.
A lot of property owners assume they can claim 100% of their rental expenses, even when the property is only partly rented, partly private, or not genuinely available for rent for the whole year.
The ATO’s latest draft Practical Compliance Guideline sets out how they expect landlords to calculate their deductions — and what they see as fair and reasonable.
This guide breaks it down in simple terms so you can stay compliant and confidently claim what you’re entitled to.
Why Apportionment Matters
You can only claim deductions for the income-producing portion of a property.
If the property is used for dual purposes (for example, you live in part of it, you holiday there, or you block out dates for friends and family), you must apportion your expenses.
This includes:
- Homes with a room rented out
- Holiday homes used privately for part of the year
- Airbnb properties not always available for rent
- Properties offered only on a limited or non-commercial basis
The ATO’s rule is simple:
Expenses must be apportioned on a fair and reasonable basis.
But how you do that depends on how the property is used.
Expenses You Can Claim in Full
Some costs relate only to earning rental income. These never need apportionment:
- Agent or platform fees
- Sharing economy commissions (Airbnb, Stayz, Booking.com, etc.)
- Advertising for tenants or guests
- Cleaning and linen costs relating to guest stays
If the cost exists solely because you rent the property out, it’s fully deductible.
Expenses That Must Be Apportioned
Most other expenses will need to be split if the property is also used privately.
This includes:
- Interest
- Rates
- Insurance
- Repairs
- Depreciation
- Utilities
- Body corporate fees
How you apportion depends on whether the whole property or only part of the property is rented.
The ATO accepts two methods:
Method 1: Time-Based Apportionment
Use this when the whole property is rented for only part of the year.
Formula:
Income-producing days ÷ Total days held
You can include:
- Days the property was actually rented, and
- Days it was genuinely available for rent at commercial rates
You cannot include days where:
- You stayed there
- Friends/family used it
- You blocked it out for personal reasons
- The property wasn’t advertised properly
- The rent was set unreasonably high
- You ignored enquiries
This is a key focus area for the ATO.
Method 2: Area-Based Apportionment
Use this when you only rent out part of the property — for example:
- A bedroom in your home
- A granny flat
- A dedicated space on Airbnb
Formula:
Area used by tenants ÷ Total property area
This is often combined with the time-based method when only part of your home is rented for part of the year.
When a Property Is “Available for Rent”
To count days as “available for rent,” you must behave like a commercial landlord.
The ATO expects:
- Broad advertising (real estate platforms, Airbnb, Stayz, etc.)
- Competitive rental rates
- Prompt responses to enquiries
- No unreasonable conditions
The ATO will deny days if:
- You list the property only via word of mouth
- You advertise outside peak seasons only
- You block out prime dates for yourself
- You set rent above market
- You impose excessive conditions (no kids, no pets, references for weekend stays)
- You ignore enquiries
Holiday homes are a big target here.
Special Rule for Renting a Room in Your Home
If you rent out just a room:
- Days not rented = private use
- Therefore you can’t count “available” days
- You can only claim deductions for days the room was actually rented
The rest of the home remains private.
Apportioning Interest on Loans
Interest deductions must also be apportioned if:
- Part of the loan was used for private purposes, or
- You refinanced and used some of the new funds privately
Only the portion used for income-producing purposes is deductible.
Redraws are treated like new loans
If you redraw funds:
- That portion of the loan is treated separately
- Interest must be apportioned based on what the redraw funded
This is often misunderstood and is another ATO audit trigger.
Quick Example
If a holiday home is:
- Rented for 60 days
- Genuinely available for rent (advertised commercially) for 120 more days
- Used privately for 185 days
Your deductible proportion =
(60 + 120 days) ÷ 365 = 49.3%
If a room in your home is 20% of the total floor area and rented for 100 days:
Time factor: 100 ÷ 365 = 27.4%
Area factor: 20%
Total deductible:
27.4% × 20% = 5.48% of yearly expenses relating to the home.
ATO’s Key Message
If you’re using the property privately at any point — or not offering it genuinely and commercially — they expect your deductions to reflect this.
Good records and a fair, reasonable apportionment method will keep you compliant.
Need help? We deal with this every day.
If you rent out a property, holiday home, Airbnb or even a room in your home, apportionment can get complicated quickly — especially when interest, redraws or mixed use is involved.
If you want peace of mind, accurate calculations, or an ATO-safe approach:
Reach out and we’ll review your situation and make sure everything is correct and compliant.
