Common Tax Deductions for Rental Property Owners in Australia

Owning an investment property in Australia comes with a range of expenses, many of which are tax-deductible. By understanding what you can and cannot claim, you can maximise your tax return and improve your property’s profitability.

The Australian Taxation Office (ATO) classifies rental property expenses into three main categories:

• Immediate deductions: Expenses you can claim in full in the same financial year.
• Deductions over time: Expenses that must be claimed across several years.
• Non-deductible expenses: Costs that cannot be claimed at all.

Below is a breakdown of the most common deductions property owners can claim at tax time.

Immediate Tax Deductions for Rental Properties

These expenses are fully deductible in the year you incur them:

• Interest on loans: You can claim interest charged on money borrowed for the rental property. If the loan is partly for private use, you must apportion the interest accordingly.
• Council rates and water charges: Deductible for the periods the property is rented or genuinely available for rent.
• Repairs and maintenance: Expenses for repairing damage or wear and tear while the property is rented. Improvements and renovations are not included.
• Insurance premiums: Includes building, contents, and landlord insurance such as loss of rent.
• Property management fees: Payments to real estate agents or property managers for managing the property.
• Legal expenses: Costs related to evicting tenants or recovering lost rental income.
• Low-cost assets ($300 or less): Assets costing $300 or less can be immediately deducted if they are not part of a set costing more than $300.

See Also: Understanding Depreciation Schedules for Rental Properties

Deductions Over Time

The following expenses must be claimed over a number of years:

• Capital works deductions: Construction costs and structural improvements can be claimed at 2.5% per year for up to 40 years.
• Borrowing expenses: Costs such as loan application fees, title searches, and lender’s mortgage insurance must be spread over five years or the term of the loan, whichever is shorter.
• Depreciating assets (over $300): Assets costing more than $300 must be depreciated over their effective life using either the diminishing value or prime cost method.

Non-Deductible Expenses

These expenses cannot be claimed:

• Property acquisition and sale costs: These include the purchase price, stamp duty, and conveyancing fees. They may be used when calculating capital gains tax but are not tax-deductible.
• Travel expenses: Travel costs to inspect or maintain a residential rental property are generally not deductible unless you run a property investment business.
• Personal use expenses: Any costs relating to times the property was used for personal purposes are not deductible.
• Second-hand depreciating assets: If you purchased a residential rental property after 9 May 2017, you generally cannot claim depreciation on second-hand assets unless certain exceptions apply.

Apportioning Rental Expenses

If the property is only rented for part of the year, or only part of the property is rented (for example, a single room), you can only claim a portion of the expenses. Only the share of costs that directly relate to earning rental income is tax-deductible.

Importance of Record Keeping

Good record keeping is essential for claiming deductions and meeting ATO requirements. You should retain all receipts, invoices, and bank statements for at least five years after lodging your tax return.

To ensure you are claiming all eligible deductions and complying with tax laws, consider working with a registered tax agent or accountant familiar with property investment. Always refer to the official ATO website for the most accurate and up-to-date guidance.