2025–26 Individual Tax Return Changes in Australia: What You Must Know Before Lodging

Tax time 2026 brings a raft of significant changes to individual tax returns in Australia. From new rental property guidance that tightens deduction claims on holiday homes, to the removal of deductibility for ATO interest charges, and the introduction of trust distribution pre-fill services, the 2025–26 income year is one of the most consequential for individual taxpayers in recent memory. A registered tax agent can help you navigate these changes, avoid costly errors, and ensure your return is lodged correctly and on time.

Understanding the Key Changes for 2025–26

The Australian Taxation Office (ATO) has introduced several important updates that affect individual taxpayers lodging returns for the year ended 30 June 2026. These changes span rental property deductions, the treatment of ATO interest charges, trust income reporting, and the removal of the minimum gift deduction threshold.

Many of these changes are not widely publicised, and taxpayers who are unaware of them risk lodging incorrect returns, triggering ATO audits, or missing out on legitimate deductions. Understanding what has changed — and what it means for your specific circumstances — is the first step to getting your return right.

Rental Property Deductions: New ATO Guidance Under TR 2026/1

The ATO has finalised three significant pieces of guidance that directly affect rental property owners: Taxation Ruling TR 2026/1, Practical Compliance Guideline PCG 2026/2, and PCG 2026/3. Together, these documents represent the most comprehensive update to rental property tax guidance in years.

What TR 2026/1 Covers

TR 2026/1 provides detailed guidance on when rental income is assessable and when related expenses are deductible for individuals who are not carrying on a rental business. It specifically addresses short-term rentals, holiday homes, and the apportionment of expenses when a property is used for both income-producing and private purposes.

The ruling clarifies that expenses must be apportioned on a fair and reasonable basis when a property is not used exclusively for income production. This affects owners who use their rental property personally for part of the year, or who list a property on short-term rental platforms such as Airbnb or Stayz.

Holiday Homes Under PCG 2026/3

PCG 2026/3 focuses specifically on the application of section 26-50 of the Income Tax Assessment Act 1997 to holiday homes. This provision denies deductions for losses or outgoings related to a holiday home unless the property is used or held for use mainly to earn assessable rental income.

The ATO will scrutinise whether holiday homes are genuinely held for income production or primarily for private enjoyment. Taxpayers who claim deductions on a holiday home that is frequently used personally, or that is not advertised for rent on commercial terms, face a heightened risk of having those deductions disallowed.

Apportionment Under PCG 2026/2

PCG 2026/2 provides guidance on "fair and reasonable" apportionment methods for rental expenses when a property serves both income-producing and private purposes. The ATO has outlined acceptable methodologies, and taxpayers who use approaches that do not align with these guidelines may face adjustments on audit.

A registered tax agent can help you determine the correct apportionment method for your property and ensure your records support the claims you make.

ATO Interest Charges No Longer Deductible

One of the most significant changes for the 2025–26 income year is the removal of the tax deduction for General Interest Charges (GIC) and Shortfall Interest Charges (SIC) incurred on or after 1 July 2025.

Previously, taxpayers who owed money to the ATO — whether from a tax debt, an amended assessment, or a late payment — could claim the interest charges imposed by the ATO as a tax deduction. This deduction is no longer available for charges incurred from 1 July 2025 onwards.

This change has a direct cash flow impact for taxpayers who carry ATO debts. If you have an existing payment arrangement with the ATO, or if you receive an amended assessment that results in additional tax and interest, the interest component is now an after-tax cost. Taxpayers in this situation should speak with a registered tax agent about strategies to minimise their ATO debt and the associated non-deductible interest burden.

Trust Distribution Pre-Fill: What Beneficiaries Need to Know

As part of the ATO's Modernisation of Tax Administration Systems (MTAS) program, trust distribution information is now available for pre-fill in individual beneficiary tax returns for the 2026 tax year. This is a significant development for the millions of Australians who receive distributions from family trusts, managed investment trusts, and other trust structures.

New Labels in Trust Tax Returns

To support the pre-fill functionality, the ATO has introduced three new labels in the statement of distribution section of the 2026 trust tax return:

• Label B1 — Non-primary production managed investment scheme amount
• Label U2 — Franked distribution related to investments amount
• Label H1 — Other assessable foreign source income from a financial investment amount

These labels are designed to assist in the calculation of the beneficiary's net financial investment loss at label IT5 in their personal tax return. Once a trust tax return is lodged and the ATO matches the data to a beneficiary, the distribution information becomes available for pre-fill in the beneficiary's myTax return or through their tax agent's software.

Implications for Beneficiaries and Tax Agents

While pre-fill is a convenience, it is not infallible. Beneficiaries should not assume that pre-filled data is complete or correct. Trust distributions can be complex, involving different character amounts such as capital gains, foreign income, and franking credits, and errors in the trust's lodgment can flow through to the beneficiary's pre-filled return.

A registered tax agent can review the pre-filled data against the distribution statement provided by the trustee and ensure that all amounts are correctly reported in your individual return.

Other Notable Changes for 2025–26

Gift Deductions: Minimum Threshold Removed

The $2 minimum threshold for tax-deductible gifts has been removed for the 2025–26 income year. Taxpayers can now claim a deduction for gifts of any amount made to eligible deductible gift recipients (DGRs), provided the gift meets all other requirements. This change simplifies record-keeping for small donations and removes a technical barrier that previously prevented very small gifts from being claimed.

ATO Data Matching and Compliance Focus

The ATO continues to expand its data-matching capabilities, drawing on information from Single Touch Payroll (STP), financial institutions, share registries, and rental platforms. For the 2025–26 income year, the ATO has signalled a particular focus on rental property deductions, work-related expenses, and cryptocurrency transactions.

Taxpayers who claim deductions that are inconsistent with ATO data — such as rental expenses that appear disproportionate to rental income, or work-related deductions that exceed industry benchmarks — are at elevated risk of receiving a review or audit letter. Accurate record-keeping and professional preparation of your return are the most effective defences.

Australian Regulatory Context

Tax agents in Australia are regulated by the Tax Practitioners Board (TPB) under the Tax Agent Services Act 2009 (TASA). Only registered tax agents are legally permitted to prepare and lodge tax returns on behalf of clients for a fee. The TPB maintains a public register of registered tax agents, which you can search at tpb.gov.au to verify that your agent is properly registered.

The ATO administers the income tax system under the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997. The new rental property guidance under TR 2026/1 and the associated PCGs represents the ATO's formal interpretation of the law and carries significant weight in any dispute or audit.

Taxpayers who disagree with an ATO decision have the right to object and, if necessary, seek review by the Administrative Review Tribunal (ART) or the Federal Court. A registered tax agent can assist with the objection process and represent you in dealings with the ATO.

The standard lodgment deadline for individual tax returns is 31 October 2026 for self-preparers. Clients of registered tax agents may be eligible for extended lodgment deadlines under the Tax Agent Lodgment Program, provided they are on the agent's client list by 31 October 2026.

Questions to Ask Your Tax Agent

When meeting with a registered tax agent for your 2025–26 return, consider asking the following questions to ensure you are fully informed about the changes that affect you.

• How does TR 2026/1 affect the deductions I can claim on my rental property, particularly if I use it personally for part of the year?
• Do I have any ATO interest charges (GIC or SIC) that I previously claimed as deductions, and how does the new rule affect my position?
• If I receive trust distributions, has the trustee lodged the 2026 trust return with the new labels, and is the pre-filled data in my return accurate?
• Are there any ATO data-matching flags on my account that I should be aware of before lodging?
• What records do I need to keep to support my rental property deductions under the new guidance?
• Am I eligible for an extended lodgment deadline through your tax agent lodgment program?

How MyMoney® Can Help

The 2025–26 income year has introduced more complexity for individual taxpayers than any year in recent memory. Whether you own a rental property, receive trust distributions, carry an ATO debt, or simply want to ensure your return is lodged correctly, a registered tax agent can provide the expertise and peace of mind you need.

MyMoney® connects Australians with qualified, TPB-registered tax agents who specialise in individual tax returns, rental property deductions, and trust income reporting. Our platform makes it easy to find a professional who understands the latest ATO guidance and can help you maximise your legitimate deductions while staying fully compliant.

Post a Brief on MyMoney® to receive tailored proposals from registered tax agents, or Browse Tax Agents to find a qualified professional near you. All tax agents listed on MyMoney® are required to hold current TPB registration, giving you confidence that you are working with a properly credentialled professional.