Rental property deductions: what landlords can and can't claim
A plain-English guide to rental property tax deductions in Australia: immediate expenses, depreciation, capital works, and common mistakes to avoid.
Rental properties are one of the most common areas where the ATO finds mistakes. Here's what you can generally claim, and what trips people up.
Expenses you can usually claim straight away
- Interest on the loan used to buy the property (not on any part used for private purposes)
- Council rates, water charges, land tax and strata levies
- Property management fees, advertising for tenants and landlord insurance
- Repairs and maintenance that fix wear and tear, such as fixing a broken tap or repainting a worn wall
- Pest control, gardening and cleaning between tenants
- Accounting fees for your rental property schedule
Claimed over time
- Capital works – the cost of building the property, and structural improvements such as a new kitchen or bathroom, are generally claimed at 2.5% a year for eligible residential buildings.
- Depreciating assets – items such as hot water systems, air conditioners, carpets and blinds are claimed over their effective life. A tax depreciation schedule from a quantity surveyor helps you claim these properly.
- Borrowing costs – loan establishment fees and mortgage registration are usually claimed over five years (or the loan term, if shorter).
Common mistakes
- Improvements claimed as repairs. Replacing a whole kitchen is an improvement, not a repair, and is claimed over time.
- Initial repairs. Fixing damage that existed when you bought the property is part of its cost, not an immediate deduction.
- Travel to inspect the property. For most individual landlords, travel to residential rentals is not deductible.
- Second-hand assets. Depreciation on assets that were already in a residential property when you bought it is restricted for most individual investors.
- Periods of private use. If family stay rent-free or the property is used as a holiday home, expenses must be apportioned.
Keep these records
Keep your purchase contract and settlement statement, loan statements, the property manager's end-of-year statement and receipts for every expense. You will also need purchase records when you sell, to work out capital gains tax.
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This article is general information only and does not take your personal circumstances into account. It is not financial or tax advice. Tax rules change, so please contact us before acting on it. Information current as at the date above.