Australian rental property investors can claim a wide range of expenses incurred in producing rental income. These deductions reduce taxable income — and when total deductions exceed rental income, the resulting net loss can offset other income (negative gearing). Here is the full list of what property investors can and cannot claim.
Key Takeaways
- Most holding costs on a rental property are deductible while the property is rented or genuinely available for rent
- The largest deductions are typically loan interest, depreciation, and management fees
- Capital improvements are not immediately deductible — they are depreciated over time
- Expenses must be apportioned if the property was used privately for part of the year
Immediately Deductible Expenses
These are claimed in full in the year they are incurred:
| Expense | Notes |
|---|---|
| Loan interest | The biggest deduction for most investors — interest only, not principal repayments |
| Property management fees | Agent’s ongoing management fee (typically 7–10% of rent) |
| Council rates | Annual rates notice |
| Water rates | Including water usage charges paid by the owner |
| Landlord insurance | Building and contents insurance for the rental property |
| Repairs and maintenance | Genuine repairs to restore an existing asset to working order (not improvements) |
| Cleaning costs | End-of-lease clean, regular maintenance cleaning |
| Pest control | |
| Gardening and lawn maintenance | |
| Advertising for tenants | Agent advertising fees, online listing costs |
| Land tax | If your state assesses land tax on the property |
| Body corporate/strata levies | Ongoing levies (not special levies for capital improvements) |
| Accounting fees | Portion related to preparing your rental property tax schedules |
| Lease document fees | Administrative preparation fees |
| Bank charges | Fees on the investment loan account |
Capital Works Deductions (Division 43)
Capital works deductions are claimed at 2.5% per year for eligible construction costs on buildings constructed after specific dates (generally after 17 July 1985):
- The building itself and structural improvements
- Claimed over 40 years from the original construction date
- You need a quantity surveyor’s report (or builder’s records) to determine the construction cost
This is separate from — and in addition to — plant and equipment depreciation.
Plant and Equipment Depreciation (Division 40)
Items that are removable or mechanical in nature depreciate at their own rates:
- Appliances (dishwasher, oven, air conditioning unit)
- Hot water systems
- Carpets
- Blinds and curtains
Important change from 1 July 2017: Investors who purchased a previously owned property after 7 May 2017 can no longer claim depreciation on second-hand plant and equipment items. This restriction applies to the items as they existed when the property was acquired. New items installed after purchase are fully depreciable. Properties with brand-new chattels (new builds) are not affected.
What Is NOT Deductible
| Expense | Reason |
|---|---|
| Loan principal repayments | Capital in nature — not deductible |
| Capital improvements (adding a deck, renovating a kitchen) | Capital — depreciated, not immediately deductible |
| Stamp duty on purchase | Capital cost (part of CGT cost base) |
| Conveyancing fees | Capital cost |
| Property purchase price | Capital |
| Expenses when property is not available for rent (e.g., vacant periods for personal use) | Must be apportioned |
| Travel to inspect investment property | Removed from 1 July 2017 — no longer deductible |
Repairs vs Capital Improvements — The Key Distinction
This distinction is one of the most important (and frequently confused) areas of property tax:
| Scenario | Treatment |
|---|---|
| Replacing a broken tap washer | Repair → immediately deductible |
| Replacing the entire roof after storm damage | Repair → immediately deductible |
| Replacing an old kitchen with a new modern kitchen | Capital improvement → depreciated over time |
| Adding a new bedroom | Capital → depreciated |
| Painting to maintain appearance | Maintenance → deductible |
| Repainting after renovating (part of a larger improvement project) | Capital → part of improvement cost |
Initial repairs on a newly purchased property (fixing defects that existed at purchase) are not immediately deductible — they are capital improvements or part of the cost base.
Negative Gearing
When total rental deductions exceed total rental income, the net loss is called a negative gearing loss. This loss can be offset against other assessable income (salary, investment income), reducing your overall tax liability.
See the taxes cluster hub for more detail on investment property strategies.
Frequently Asked Questions
Can I claim expenses during a period when the property was vacant? If the property was genuinely available for rent (advertised, listed with an agent) but no tenant was found, expenses incurred during that period are generally deductible. If the property was vacant because you were using it personally or had not yet listed it, expenses during that period are not deductible.
I own the property in both my name and my partner’s. How do we split deductions? Deductions (and income) are divided according to ownership percentage. If you each own 50%, each claim 50% of income and expenses.
Do I need a quantity surveyor’s report? You do not legally need one, but a properly prepared QS report maximises your depreciation claim and provides the documentation the ATO expects. For newer properties or significant holdings, the cost of a report is typically recouped in additional deductions within a year or two.
This article provides general tax information. For advice tailored to your situation, speak with a registered tax agent. Find one through the Tax Practitioners Board register.