Australian investment property owners can claim a broad range of tax deductions to reduce the taxable income from their rental property. Understanding exactly what is deductible — and what is not — is essential for accurate tax returns and avoiding ATO scrutiny.
Immediately Deductible Expenses
The following expenses are generally deductible in the year they are incurred:
Loan interest
Interest on the investment property loan is the largest deduction for most investors. Only the interest portion is deductible — principal repayments are not. If part of the loan is used for personal purposes, only the investment portion of interest is deductible.
Property management fees
Fees charged by a property manager for managing the tenancy, rent collection, maintenance coordination, and inspections. Typically 7–10% of gross rent plus a letting/lease renewal fee.
Council rates
Annual local government council rates on the property.
Water rates
Water and sewerage charges (the supply charge portion, not usage charged to tenants).
Body corporate levies (strata fees)
Administration fund and capital works fund levies on units or townhouses in strata schemes.
Landlord insurance
Insurance premiums for landlord-specific policies covering building, contents (if furnished), loss of rent, and liability.
Repairs and maintenance
Repairs that restore the property to its original condition are immediately deductible. Examples:
- Repairing a broken fence
- Fixing a leaking roof
- Replacing a broken hot water system (replacement, not upgrade)
Advertising for tenants
Costs of advertising the property for rent — online listing fees, newspaper ads.
Accounting and legal fees
Tax agent fees for preparing the rental income section of your return. Legal fees directly related to the tenancy (not the purchase).
Travel to inspect the property — now restricted
Since 2017, travel expenses to inspect a residential investment property are no longer deductible for individual investors. Travel for property purchase is also not deductible. Note: This restriction applies to residential property — some commercial property rules differ.
Depreciation
Non-cash deductions for the decline in value of the building structure (Division 43) and plant/equipment (Division 40). See Depreciation on Investment Property.
Capital Expenditure — Not Immediately Deductible
Capital improvements are not immediately deductible — they must be depreciated or added to the cost base:
- Renovating a kitchen or bathroom
- Adding a new room or extension
- Installing solar panels or a new air conditioning system (where none existed before)
- Replacing a fence with a substantially better one
The ATO distinguishes between repairs (restoring to original condition) and improvements (enhancing beyond original condition). An improvement is not immediately deductible.
Purchase Costs — Not Deductible, But Affect Cost Base
The following are not deductible as expenses but form part of the property’s cost base for CGT purposes:
- Stamp duty on purchase
- Conveyancing and legal fees (purchase)
- Building and pest inspection fees
- Loan establishment fees
Including these in the cost base reduces the eventual capital gain when the property is sold.
Common ATO Red Flags
The ATO data-matches rental income from real estate agent records and actively reviews rental property claims. Common errors include:
- Claiming improvements as repairs: The ATO may disallow these on audit
- Claiming expenses for private use periods: If you use the property yourself for part of the year, deductions must be apportioned
- Interest deductibility on redrawn funds: If you redraw from an investment loan and use funds for personal purposes, that portion of interest is no longer deductible
Apportionment Rules
If a property is rented for only part of the year (e.g., you use it as a holiday home for 6 weeks and rent it for 46 weeks), all deductions must be apportioned to the rental-use period only. Expenses during periods of personal use — or periods when the property is not genuinely available for rent — are not deductible.
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Frequently Asked Questions
Can I claim the cost of buying the property as a tax deduction? No. Purchase costs (stamp duty, conveyancing, inspection) are capital costs — they form part of the cost base for CGT but are not immediately deductible as expenses.
Is the principal portion of my loan repayment deductible? No. Only the interest component of your loan repayment is deductible. Principal repayments reduce the loan balance (your equity grows) but are not a deductible expense.
Can I claim deductions on a property that’s not yet rented? Expenses incurred while actively advertising and seeking a tenant may be claimable if the property is genuinely available for rent. Expenses during a period when the property is not genuinely on the rental market are generally not deductible — for example, if the property is vacant between your purchase and the time you list it.
This article provides general financial information only. Tax rules are subject to change. Always consult a registered tax agent for your specific situation. For advice on your investment strategy, speak with a licensed financial adviser through the ASIC financial advisers register or MoneySmart.