This article is general information only and does not constitute financial or tax advice. Consult a qualified tax professional for advice specific to your situation.
Key takeaways
- Deductible expenses include loan interest, council rates, land tax, insurance, property management fees, repairs, and depreciation.
- Stamp duty and capital improvements (new kitchens, added rooms) are not immediately deductible but are depreciated over time or added to your cost base.
- The repairs vs. improvements distinction is the area the ATO audits most closely on rental property returns.
- Travel to inspect your rental property has not been deductible for individual landlords since 1 July 2017.
- The ATO requires you to keep receipts and records for every claimed expense for five years from the date you lodge the return.
If you own a rental property, the ATO lets you claim a wide range of expenses against your rental income, but the rules have sharp edges, and the distinctions that trip up most landlords aren't obvious until you're already in trouble. This guide lays it out plainly.
For a broader introduction to rental property deductions, see our complete guide to rental property tax deductions in Australia.
Expenses You Can Claim
These are deductible in the same income year you incur them, as long as the property is rented or genuinely available for rent during that period.
Financing costs
- Loan interest on money borrowed to purchase the property or fund deductible repairs
- Loan establishment fees (spread over the loan term using the borrowing expenses rules)
- Lenders mortgage insurance (LMI), also spread over 5 years or the loan term, whichever is shorter
Holding costs
- Council rates
- Water rates (fixed charges, not usage charges passed on to tenants, which you collect but don't pay)
- Land tax, where applicable in your state. Use the land tax calculator to check your liability based on current state thresholds.
- Strata levies or body corporate fees, including special levies raised for maintenance
Insurance
- Landlord insurance
- Building insurance
- Public liability insurance for the property
Property management and letting costs
- Property management fees
- Advertising costs to find tenants (online listings, signage, photography)
- Lease preparation fees charged by your agent
Maintenance and repairs
- Routine repairs to keep the property in its current condition (replacing a broken tap washer, fixing a damaged fence, repainting a room that has genuinely deteriorated)
- Pest control
- Gardening and lawn mowing
- Cleaning between tenancies
Professional fees
- Accountant fees for preparing your rental income schedule
- Legal fees related to the tenancy (debt recovery, lease disputes), not purchase or sale costs
Other operating costs
- A portion of your phone and internet costs if you use them to manage the property (keep a diary or log to support the claim)
- Postage and stationery for property-related correspondence
- Travel to inspect the property or carry out repairs (but see the note below on travel)
A note on travel: The ATO removed the deduction for residential landlords travelling to inspect their own properties from 1 July 2017. You can still claim travel costs if you are in the business of property investing (typically many properties, substantial activity) but for most individual landlords, inspection travel is no longer deductible.
Expenses You Cannot Claim (Or Must Treat Differently)
Purchase and acquisition costs
- Stamp duty: this is a capital cost, not a deduction. It adds to your cost base for capital gains tax purposes.
- Conveyancing fees paid on purchase
- Building and pest inspections done before you bought the property
Capital improvements
- Adding a new room, deck, or garage
- Installing a brand new kitchen or bathroom where none existed, or a full renovation that substantially improves the property beyond its original condition
- Replacing an entire roof (versus repairing damaged sections)
Capital improvements are not immediately deductible. They are depreciated over time, which is a different calculation. See our guide on how to calculate depreciation for a rental property, or run your own numbers with the depreciation calculator.
Private or personal use periods
- If you or your family used the property yourself during the year, you can only claim expenses for the portion of time it was rented or available for rent.
- Holiday homes that sit empty because you simply chose not to rent them out do not qualify.
Borrowing to buy shares or other non-property assets
- Loan interest is only deductible if the loan was used to purchase the rental property or fund deductible costs. If you redrew on your investment loan for personal use, that portion of interest is not deductible.
The Repairs vs. Improvements Distinction
This is the single area the ATO scrutinises most closely in rental property audits, and it is genuinely confusing.
A repair restores something to its previous working condition. Patching a leaking roof, replacing a section of rotten decking, or fixing a broken stove element are all repairs. Deductible in full this year.
An improvement makes the property better than it was before, or replaces something that was there originally with something of a higher standard. Putting in a new kitchen where there was a functional (if dated) kitchen, adding ducted air conditioning where there was none, or replacing old carpet with hardwood floors. These are improvements, not repairs.
The fact that something is old or worn does not automatically make replacing it a repair. Replacing a 30-year-old hot water system with a new one is typically treated as a capital improvement and depreciated, not claimed immediately.
For a detailed look at how the ATO draws this line, and what to do when a job crosses both categories, read our article on claiming maintenance and repairs on an investment property.
What Records the ATO Requires
The ATO expects you to keep records for 5 years from the date you lodge the return that includes the claim. For capital items like improvements and purchase costs, you need records for 5 years from the date you sell the property.
What you need to keep:
- Receipts and invoices for every expense you claim (paper or digital copies are both acceptable)
- Bank statements showing the payment was made
- Loan statements showing the interest charged
- Rental agreements to confirm the property was rented during the relevant periods
- Agent statements if you use a property manager (these usually include a full income and expense summary)
- A log or diary for any portion claims (phone, internet, or travel if applicable)
If you pay cash for repairs and cannot get a receipt, the ATO may disallow the claim. Always get written confirmation of work done and money paid.
Common Mistakes That Attract ATO Attention
- Claiming capital improvements as repairs. As covered above, this is the most audited area. If a contractor quotes for "a new bathroom" rather than "repairing the shower tiles," that language matters.
- Claiming expenses for periods the property was vacant by choice. If you took the property off the market for renovations or personal reasons, you cannot claim expenses for that period.
- Claiming the full interest cost when you redrew for personal spending. A mixed-use loan needs to be apportioned.
- Claiming 100% of phone or internet costs. The ATO expects a reasonable business-use percentage, and it is unlikely to be 100%.
- Missing the 45-day rule on borrowing expenses. If your total borrowing expenses are over $100, they must be spread across 5 years, not claimed in one year.
- Not keeping records. The ATO can and does request documentation years after a return is lodged.
Check If Your Property Is Negatively Geared
Once you know your total deductible expenses, the next question is whether they exceed your rental income. If they do, your property is negatively geared, and the loss reduces your taxable income from other sources like your salary.
Enter your rental income and expenses below to see where you stand.
Enter your weekly rent and expenses to see whether your property is negatively or positively geared.
How propkt Helps You Stay on Top of This
propkt lets you log every income and expense against the specific property it relates to, throughout the year, not just at tax time when you're scrambling through email threads and old bank statements.
When you record an expense, you assign it a category (interest, rates, repairs, insurance, and so on). propkt's expense tracking keeps running totals by category so you can see at a glance what you've spent and what should be deductible. You can also use the cash flow calculator to see whether your property is running at a surplus or a shortfall before tax time arrives. You can attach receipts and invoices directly to each transaction so everything is in one place when your accountant asks.
At the end of the financial year, you can export a full summary (by property, by category, covering the Australian July-to-June tax year) and hand it straight to your accountant.
Getting your records organised throughout the year means fewer billable hours with your accountant and less risk of missing a legitimate deduction because you couldn't find the paperwork.
Ready to stop losing track of expenses mid-year? Start tracking your rental properties with propkt, free for your first property.