Rental income from an investment property is assessable income in Australia — it must be included in your tax return for the year you receive it (or are entitled to receive it). Against this, you can deduct a range of property expenses. If your deductions exceed your rental income, you have a rental loss — and if you are negatively geared, that loss may reduce your other taxable income (such as salary).
What Counts as Rental Income
All money received from tenants must be declared, including:
- Rent payments — weekly, fortnightly, or monthly rent
- Advance rent — rent paid in advance is assessable in the year received
- Bond — if you use the bond (e.g., for repairs at end of tenancy), the used amount is assessable income
- Insurance proceeds — if you claim insurance for lost rent, the proceeds are assessable
- Letting and booking fees (for short-term rentals via Airbnb/Stayz)
Allowable Deductions Against Rental Income
Most property-related expenses are deductible to the extent they relate to producing rental income. Key deductions include:
| Deduction | Notes |
|---|---|
| Loan interest | On the investment property loan only (not your home loan) |
| Property management fees | Agent commission, letting fees, management costs |
| Council rates | Fully deductible |
| Water charges | Landlord’s portion (not tenant-paid usage charges) |
| Insurance | Landlord insurance, building insurance |
| Repairs and maintenance | Immediate repairs to restore function (not improvements) |
| Body corporate/strata fees | For apartments and units |
| Advertising | Costs to find tenants |
| Depreciation | Decline in value of plant and equipment; building write-off (Div 43) |
| Land tax | If applicable in your state |
| Accountant fees | Portion related to investment property |
See Investment Property Tax Deductions for the full list, and Rental Property Depreciation for depreciation rules.
Repairs vs Capital Improvements — An Important Distinction
A common source of confusion is the difference between repairs (immediately deductible) and capital improvements (depreciated over time):
| Tax treatment | |
|---|---|
| Repairs: Restoring something to its original condition (fixing a broken pipe, repainting) | Immediately deductible |
| Initial repairs: Fixing pre-existing defects when you bought the property | Not immediately deductible — added to cost base |
| Improvements: Replacing, upgrading, or adding something new (new kitchen, extension) | Depreciated as capital works (2.5% per year over 40 years) |
Positive vs Negative Gearing
Positive Gearing
If your rental income exceeds your deductions, you have a rental profit. This is added to your other income and taxed at your marginal rate. Positively geared properties generate ongoing tax obligations but also positive cash flow.
Negative Gearing
If your deductions exceed your rental income, you have a rental loss. In Australia, this loss can generally be offset against your other income (salary, business income), reducing your taxable income for the year. This is negative gearing.
Example:
- Annual rent: $26,000
- Annual expenses (interest, rates, agent fees, depreciation): $35,000
- Rental loss: $9,000
- Salary: $90,000
- Taxable income after negative gearing: $90,000 − $9,000 = $81,000
At 34.5% marginal rate, the $9,000 loss saves approximately $3,105 in tax.
See Negative Gearing Explained for a full analysis.
Depreciation — An Important Non-Cash Deduction
Depreciation is a deduction for the decline in value of the property’s assets over time, even though you have not actually paid any cash. There are two types:
- Division 43 — Building write-off: 2.5% of the original construction cost per year for properties built after 18 July 1985. Applies to the structure itself.
- Division 40 — Plant and equipment: Carpets, ovens, air conditioners, dishwashers, hot water systems — depreciated at rates set by the ATO based on effective life.
A quantity surveyor’s report identifies all depreciable items and their values. This upfront cost (typically $300–$700) often pays for itself many times over in tax savings.
Partial Year Rental
If you rented the property for only part of the year (e.g., you moved in or moved out), you can only claim expenses for the rental period. Fixed costs (such as insurance, council rates, depreciation) need to be apportioned based on the proportion of the year the property was rented or available for rent.
Short-Term Rentals (Airbnb)
Income from short-term rentals via Airbnb, Stayz, or Vrbo is also assessable. Deductions must be apportioned based on the time the property was actually rented or available for rent (not any personal-use periods).
Related Articles
- Negative Gearing Explained
- Investment Property Tax Deductions
- Rental Property Depreciation
- Capital Gains Tax on Property
- Tax on Investments hub
- Taxes hub
Frequently Asked Questions
Do I pay tax on the bond if the tenant pays and I never touch it? No. A rental bond held in trust (e.g., by your state’s tenancy bond authority) is not assessable income until and unless you access it. If the full bond is returned to the tenant at the end of the tenancy, there is no income.
Can I deduct the cost of travelling to inspect my rental property? From 1 July 2017, travel expenses to inspect or maintain a residential rental property are no longer deductible for individual investors. This deduction was removed by legislation. The deduction may still be available for properties held in some other structures — seek advice from a tax agent.
What if my investment property was sometimes used privately? You must apportion deductions based on the proportion of time the property was rented or available for rent vs personally used. Periods of personal use reduce your deduction entitlement.
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.