Many of our clients own an investment property (or multiple).
Here we’ll cover what income to declare from your properties and what expenses you can claim to reduce your taxable rental income. We’ll also clarify tricky areas like repairs vs improvements, depreciation, and the records you need to keep.
Rental Income - What to Include
Declare the gross rent you earned from 1 July 2024 to 30 June 2025. This includes all regular rent payments from tenants (weekly/fortnightly rent). If tenants paid any utility reimbursements (like they reimbursed you for water usage) or other charges, those are income too. Also include:
Any rental bond money you retained (for example, a tenant broke a lease and you kept $500 of their bond for unpaid rent or damages – that $500 is considered income, but note that you’ll also likely have a repair expense or credit for damage which you can deduct if you spend it fixing the place).
Insurance payouts related to rent: e.g., if you had landlord insurance that paid you $2,000 for lost rent during a tenant default, that payout is income.
Booking or letting fees from platforms (for Airbnb, etc.): If the platform gives you gross and then they take fees, it’s usually easiest to declare the net you received, but we can also declare gross and expense the fees. We prefer to report what hits your bank (net) and separately claim any commissions as an expense.
If you rented out part of the year only, or part of the property (like one room), then declare only that portion of rent, but also your expenses must be prorated.
Rental Income in Action
You have a house and rented it out via Airbnb for 100 nights in the year, earning $15,000, and used it yourself the rest of the time. You declare $15,000 income; you can only deduct expenses for 100/365 days (27.4%) of yearly costs, except any direct costs for those rentals (like cleaning fees after guest stays, which are fully deductible). This can get complex, but we’ll handle apportionment if needed.
Expenses - What You Can Claim
You can claim a wide range of expenses against rental income, typically for the periods the property was rented or genuinely available for rent (marketed at a realistic rent).
Common deductible expenses (claimed in the year you paid them) include:
Loan Interest: The interest component of your mortgage for the rental property is usually the largest deduction. Only interest, not principal repayments. If you have a redraw or offset account, only interest actually charged (net of offset) is deductible. We’ll need the annual interest amount – often provided in loan statements or an interest summary from the bank. If the loan is split or you refinanced, bring details for the year. (If part of the loan was used for private purposes, we must only claim the portion for the rental).
Council Rates: Deductible for periods property is rented/available.
Water & Sewerage Rates: If you pay water service charges (even if you pass on usage to the tenant), your out-of-pocket portion is deductible.
Strata Levies (Body Corporate fees): Deductible, except any special levies that go toward capital works (e.g., a special levy for a new roof – that might be capital and not immediately deductible; but general maintenance levies are deductible). We may need to dissect the purpose of special levies if any.
Landlord Insurance Premiums: Deductible. Also building insurance and public liability insurance for the property are deductible.
Property Agent Management Fees: If you use an agent, their monthly management fee (usually a % of rent) and any letting fees (for finding new tenant) are deductible. They often deduct these from rent, but we’ll ensure we capture it via the annual statement.
Repairs and Maintenance: Costs to repair damage, fix wear and tear, or maintain the property in good tenantable condition are deductible if they are not initial repairs and not improvements. This is an area the ATO watches closely.
Key distinctions:
A repair typically restores something to its original state or function (fixing something broken or worn out).
Examples: fixing a leaking tap, patching and painting a wall that had a hole, replacing a part of the gutter, mending a fence, replacing a few broken roof tiles, fixing an appliance (like servicing the ducted aircon). These can be claimed in full in the year you paid for them (provided at the time of repair, the property was rented or ready to rent).Maintenance is work to prevent or address deterioration – e.g., regular servicing of the heating system, oiling a deck, cleaning gutters, repainting faded exterior annually . Also immediately deductible.
An improvement is making something better than it originally was, or adding something new, or going beyond just restoring functionality . Examples: renovating the bathroom, upgrading windows to double glazed, building a deck or extension, completely replacing an entire structure with a new one of better quality. These are capital and not immediately deductible. Instead, they are either depreciated (as capital works or capital allowances). For instance, building work is usually claimed at 2.5% per year (see Capital Works below).
Replacement of the entire item vs part: If you replace the entire identifiable asset, that’s usually capital. e.g., replacing an entire hot water system, or the entire roof – those are capital (even if due to damage) . Replacing a part (element) of an asset is a repair (e.g., replacing a few broken roof tiles is a repair; replacing the whole roof is capital) . Another example: the bathroom vanity is water-damaged so you replace the vanity – that could be considered an “entire asset” (the vanity itself) so arguably capital (depreciable), but ATO sometimes accepts that as a repair if the intention was to fix damage and it’s like-for-like. If you upgrade to a double-sink fancy vanity, definitely an improvement.
Initial repairs: If you had to fix issues that existed when you bought the property, those costs are NOT deductible as repairs . They are considered part of the cost of acquiring the property (capital in nature). For example, you buy a house knowing the fence was already broken and you replace it after settlement – that’s an initial repair. The ATO says even if you didn’t know about the problem at purchase, if the damage was pre-existing, it’s initial repair. Initial repairs can’t be claimed as an immediate deduction. Instead, treat them as capital: if it’s like for like (fixing building defect), you might claim as capital works (2.5% over 40 years); if it’s an asset replacement, depreciate the new asset. And those costs also add to your cost base for CGT (with a reduction for any capital works claimed).
Example: Lisa buys a rental knowing the roof is in bad shape and will need full replacement . After purchase, she spends $9,000 replacing all roof tiles and $2,000 fixing interior water damage. Those are initial repairs – not immediately deductible. But she can claim them as capital works deductions over time, and any unclaimed part will reduce CGT when selling.Apportioning mixed work: Sometimes a tradie might do a bit of repair and a bit of improvement in one job. For instance, you get a handyman to replace some rotten weatherboards (repair) and also install a new window (improvement) in the same visit. The invoice should ideally separate the costs. If not, ask for itemization. Only the repair portion is immediately deductible; the improvement portion is capital (claim via depreciation).
Example: Caitlin had her rental’s interior walls repainted (they were peeling – a repair) and got the external walls rendered and painted to modernize the look (an improvement). The painter’s invoice broke out $3k for interior repaint and $7k for external rendering . She claims $3k immediately as repairs, and $7k as capital works (depreciating at 2.5% = $175/year).*Interest on loans for renovations: If you take a loan to do a renovation that’s an improvement, the interest on that loan is generally deductible (since the borrowed funds are used in the income-producing activity). However, the renovation itself is capital. Just noting that if you have separate loan splits for different purposes, we should track interest accordingly.
Depreciation (Capital Allowances) – Plant & Equipment: For assets within the property (often called “plant and equipment”), you claim depreciation (also known as decline in value). This includes items like appliances (stove, dishwasher, fridge if you provided one, washing machine if provided for tenants, etc.), hot water systems, heaters, air conditioners, ceiling fans, carpets, blinds, furniture in a furnished property, lawnmowers (if provided for tenants’ use), and so on. Each has an effective life – e.g. carpet might be 8 years, dishwasher 6 years, etc. You claim a portion each year. If you bought the asset new for the property, you can depreciate it.
Important update: If the property was purchased after 9 May 2017, you cannot claim depreciation on previously used assets that came with the property (e.g., old existing stove or old carpet that was already there) – those are “previously used depreciating assets” and the government disallowed claiming them to curb abuse. Instead, their value is just factored into your cost base for CGT. But if you buy a brand new asset for the property, or replace an asset, you can depreciate the new one. Also, if your property is new or substantially renovated and you are the first owner, then everything is new to you and you can depreciate the plant items.
We often recommend getting a Quantity Surveyor’s depreciation schedule for a rental property, especially a newly built property or one with many assets, because it lists all eligible depreciation items and construction write-off. If you have one, bring it – it makes our job easy. If not and the property is older with not much in assets, we can improvise for key items.Note: Low-Value Pool – items under $1,000 can be pooled and depreciated at a faster rate (18.75% first year, 37.5% subsequent). Also, immediate write-off for low-cost items: if an item cost under $300 and the property isn’t owned by multiple people (or your share of cost is under $300), you can deduct it outright. E.g., you bought a new toaster for the tenant $50 – just expense it. We’ll apply these rules to maximize your deductions.
Capital Works (Building Write-Off): If your property was built after a certain date, you can claim depreciation on the building structure (generally 2.5% per year of the original construction cost for residential). For any residential building built after 17 July 1985, this applies (2.5% for 40 years from construction) . If built or had an extension/reno between 1985-87, it’s 4% for those early years, then 2.5%. Also, structural improvements (like adding a pergola, concrete driveway, etc.) after 27 Feb 1992 get 2.5%. If you purchased the property second-hand, you can continue to claim the remaining years of that building write-off (it transfers; unlike plant which doesn’t). For example, you bought a house built in 2005 – original owner likely claimed building depreciation from 2005 to 2024, you can claim 2025 to 2045 roughly. We need either the original construction cost or an estimate (that’s what quantity surveyors provide if unknown). If you don’t have it, we can use the purchase price allocation or look up some data, but a QS report is ideal. Also, if you did renovations (structural), those costs can be written off at 2.5%. Even initial repairs counted as capital can be added to this pool (like Lisa’s $15k structural work in example, she’ll claim 2.5% of that yearly)
Borrowing Expenses: Costs for obtaining the loan – such as loan application fees, title search fees, mortgage registration, broker fees, stamp duty on mortgage (if any) – are not immediately deductible if over $100. They are spread over 5 years or the life of the loan, whichever is shorter. Typically we’ll amortize them at 20% per year for 5 years. If you refinance, unclaimed old ones can be deducted fully at refinance time and new ones start, etc. Bring details of any such costs when the loan started (or if you refinanced in this tax year, those new loan fees).
Advertising for Tenants: Any costs to advertise or list your property for rent (online ads, newspaper listings, agency listing fees) are deductible in the year paid.
Property Management Fees: Covered above with agent fees (monthly %). Also, if you paid one-time costs like tenant reference checks, or a fee to an agent for a routine inspection beyond thecontract, deductible.
Stationery, Phone, Postage: e.g., cost of making copies of the lease, phone calls to the agent, postage for mailing documents – minor, but technically claimable. Most people don’t bother tracking these small things, but if you have long-distance calls or substantial admin costs managing the property, you can claim.
Travel for Rental Purposes: In the past, landlords could deduct travel to inspect their rental or carry out maintenance. However, since 2017, travel expenses (like car, flights, accommodation) related to residential rental properties are non-deductible for individual investors. (Only allowed for businesses like property rental businesses.) So, you cannot claim driving to your rental to do an inspection or repair – that was stopped by law. So do not claim any travel for residential properties (we’ll exclude it). If your property is commercial or you are in business of property, different story, but for typical residential, travel is out.
Legal Expenses: If you incurred legal fees for things like evicting a tenant, debt collection of unpaid rent, or defending a damages claim – those legal fees are deductible (they’re incurred in course of generating rent). However, legal fees on the purchase or sale of the property are not deductible (those are capital costs for CGT).
Accounting Fees (for rental schedule): If you pay us or someone specifically for managing the rental accounts or advice on the rental during the year (apart from the tax return prep fee, which is claimed under managing tax affairs), it could be deducted here. But typically, we just claim our tax prep fee in the “tax affairs” section.
Miscellaneous: Bank fees on the mortgage account, P.O. box fee if you set one up for rent, etc., are deductible. Also, land tax (if applicable in your state) is deductible for the period it relates to when property was rented.
Expenses You Cannot Claim
Some costs related to your rental that are capital or private in nature which you cannot deduct (though capital ones may add to cost base):
Purchase costs: The purchase price of the property is not deductible (duh – you get that back when selling, and any gain is taxed). But things like stamp duty on purchase (in QLD and most states for investment property), conveyancing/legal fees on purchase, buyers agent fees, building inspection before purchase – all not deductible. They get added to your cost base for CGT to reduce gain when selling. (Exception: Stamp duty on shares is deductible, but on property it isn’t; and in ACT, stamp duty can sometimes be deductible as borrowing expense if property under leasehold – rare case).
Principal portion of loan repayments: Only interest is deductible, as said. The principal just builds your equity (cost base of property doesn’t change with principal payments either).
Expenses not actually incurred by you: If the tenant directly paid a bill that you were liable for, and you didn’t reimburse them, then you technically should count that as income and then expense – but usually, arrangements are clear (like water usage paid by tenant is just not your expense or income). If someone gifts you a new oven, you can’t depreciate its value because you didn’t pay for it.
Initial Repairs: As covered, can’t deduct those immediately (capital instead). Also, any improvements (capital works) can’t be deducted immediately (only depreciated).
Vacant land holding costs: If you have an empty block of land (no property yet built), new rules often deny deductions for costs (interest, rates) unless you are actively constructing and it will be available to rent soon. If you’re in that situation, we’ll discuss specific vacant land rules. Generally, until a dwelling is built and available for rent, you can’t claim those holding costs (again, they may accumulate toward cost base).
Private portion: If your property was only rented part-year (e.g., you used it for holiday part of year), or only part of it rented (like you rent out one room and live in the rest), you must apportion expenses. Only the portion relating to rental is deductible. We will do the math based on number of days rented or floor area of portion rented, etc., that you provide.
Depreciation on old assets (second-hand): as mentioned, you can’t claim depreciation on, say, that 10-year-old stove that was already in the house when you bought it. Only on new improvements or items.
Mortgage redraw for private use: If you pulled equity from your loan to buy a car or holiday, the interest on that portion is not deductible. If that happened, let us know so we can split interest.
Refinance costs for private top-up: Similar idea, if you refinance and increase loan to pay off personal debt, the interest on increased part is not for the rental.
Fine or penalties: e.g., council fine for not cutting grass – not deductible.
Meals while visiting property: not allowed (travel itself disallowed).
Capital Gains on Sale of Property
If you sold the property during the year (or are planning to), please note: we will need to do a capital gains calculation. The cost base includes your purchase price plus purchase costs (stamp duty, legal, etc.), plus capital improvements (renovations, initial repair costs, special levies for capital works) you’ve made over time (we subtract any depreciation on capital works claimed). The sale price minus selling costs (agent commission, legal fees to sell, advertising for sale) minus cost base = capital gain. If you owned the property more than 12 months, you get a 50% discount on the gain. If it was at some point your home (main residence), you might get partial main residence exemption for that period – calculations can be complex but we’ll handle it. Bring all documents related if you sold. If you haven’t sold yet, remember that claiming building depreciation (capital works) will slightly increase your capital gain when you sell, because those deductions reduce your cost base. But it’s usually still beneficial to claim them (better to have the deductions now than a tiny bit more CGT later, considering time value of money).
Records to Keep for Rental Properties
Income: Keep bank statements showing rent, annual agent statements, lease agreements.
Expenses: Receipts/invoices for all expenses (especially large ones like repairs). Agent statements often list monthly expenses they paid on your behalf (repairs, fees, etc.), those are okay as evidence but better to have the actual invoice for repairs in case details are needed (like was it a repair or improvement).
Loan statements: to prove interest amounts.
Property purchase and sale documents: hold these indefinitely until you sell plus maybe 5 years after sale (for CGT proof).
Depreciation schedule: if you have one, it’s gold – it outlines year by year deductions. If not, keep a list of asset purchases yourself.
Period of availability: If your property was vacant for a time, keep evidence you were trying to rent it (copy of ad, etc.). The expense during genuine vacant periods is still deductible.
ATO Audit Hotspots for Rentals
The ATO has indicated they are scrutinizing over-claimed rental deductions and omitted rental income. They have data matching with land titles and Airbnb now.
Common issues:
Not declaring all rent (e.g., cash rent or Airbnb).
Claiming deductions for periods when you actually used the property for personal use (like claiming a holiday home as 100% rental when you stayed there 2 months).
Claiming initial repair or improvement as immediate deduction.
Claiming full expenses when property wasn’t genuinely available for rent (e.g., trying to claim while sitting vacant not listed, or while building work meant it wasn’t livable).
Forgetting to pro-rate expenses if the property was purchased or sold mid-year (only count expenses for the part of year you owned it and rented it).
Interest claims on mixed-purpose loans incorrectly calculated.
We will help ensure your rental schedule is accurate and defensible. If something is borderline, we’ll advise the safest course or what documentation would be needed to support it. The good news is, rental properties often generate tax losses (“negative gearing”), which can boost your tax refund and help offset your other income – as long as it’s done correctly.If you have multiple properties, we’ll do a schedule for each. Be sure to provide separate income and expense details per property.