Deductions are what make Australian rental property investing work — the difference between rent as taxable income and a manageable, sometimes negatively geared, position. This guide sets out what you can claim immediately, the crucial repairs-versus-improvements line, depreciation, and the records the ATO expects.
When you own an investment property, the rent is taxable income — but you can deduct the costs of earning it. The net result (rent minus deductible costs) is what gets added to or subtracted from your taxable income. When deductions exceed rent, the property is negatively geared and the loss reduces the tax on your other income. Understanding what you can claim is central to making the numbers work.
Estimate the effect on your tax with our income tax calculator, and model the property itself with the rental property calculator.
Many rental expenses are deductible in the year you incur them, in proportion to how much the property is rented out. Common immediate deductions include:
The tax treatment of work on the property depends on whether it is a repair or an improvement, and the difference is frequently misunderstood.
Work done as soon as you buy, before the property earns rent, is generally treated as capital rather than an immediate repair. Timing and character both matter, which is why keeping clear records and invoices is essential.
Depreciation is the deduction beginners most often leave on the table. It lets you claim the gradual wear and tear of the building and its fixtures — carpets, appliances, blinds, hot water systems — without spending any new money each year. On newer properties in particular, depreciation can add thousands in deductions annually. A qualified quantity surveyor prepares a depreciation schedule that sets out exactly what you can claim. Our depreciation calculator illustrates the concept, and our depreciation guide goes deeper.
Two rules catch people out. First, if a property is only rented part of the year, or is partly used privately, deductions must be apportioned to the income-producing use. Second, some costs are claimed over time rather than immediately — borrowing costs and improvements are spread across years. Claiming everything upfront when it should be spread is a common error that can trigger an ATO review.
Deductions are only as good as the records behind them. Keep every receipt, invoice, bank statement and agent summary, and hold them for five years after you lodge. For anything ambiguous — particularly repairs versus improvements, or apportioning private use — a registered tax agent is worth far more than the fee. Our free resources include a tax deduction checklist to help you gather the right documents.
Finally, remember that deductions and the eventual sale are linked. Costs claimed as capital improvements or depreciation feed into the cost base used to calculate capital gains tax when you sell. Good deduction records during ownership make the capital gains calculation at sale far easier and more accurate.
What can I claim on an investment property?
Immediate deductions include loan interest, council and water rates, land tax, insurance, management fees, repairs, strata fees, pest control, cleaning between tenants and advertising for tenants. Improvements and borrowing costs are claimed over time rather than immediately.
What is the difference between repairs and improvements?
A repair restores something to its original condition — like fixing a broken fence — and is deductible immediately. An improvement makes something better, like a new kitchen, and is claimed gradually through depreciation over years, not in one hit.
What is depreciation on a rental property?
A deduction for the gradual wear and tear of the building and its fixtures — carpets, appliances, blinds — that you claim without spending new money each year. On newer properties it can add thousands in annual deductions. A quantity surveyor prepares the schedule.
Can I claim deductions if the property is only rented part of the year?
Yes, but they must be apportioned to the income-producing use. If a property is rented part of the year or used privately for part of it, you claim only the proportion that relates to earning rental income.
How long must I keep rental property records?
Keep every receipt, invoice, bank statement and agent summary for five years after you lodge. Good records are essential for repairs versus improvements, apportioning private use, and the eventual capital gains calculation when you sell.