Rental Property Tax: What Property Investors Can and Can't Claim

Last reviewed: 2026-06-16Property & Investment

Rental Property Tax: What Property Investors Can and Can't Claim

Short answer: you declare all the rent you receive, and you can claim expenses for the period the property is rented or genuinely available to rent. The catch is timing - some costs come off your tax this year, some are spread over many years, and getting that split wrong is exactly what the ATO looks for.

We help a lot of landlords here in Mortdale and across the St George area, and the same questions come up every July. This guide walks through them in plain English.

Income You Need to Declare

Declare the full amount of rent, plus any associated payments - bond money you become entitled to keep, insurance payouts for lost rent, tenant reimbursements, and letting or booking fees for short-stay arrangements. Declare the gross income, then claim deductions separately - don't net expenses off first. If you co-own or only rent part of the year, you still declare your share of everything.

Expenses You Can Claim Straight Away

These are the costs of holding and running the property that you can deduct in the same income year you incur them (for the period it's rented or available to rent):

Loan interest on money borrowed to buy the property (the interest portion, not the principal repayments)
Council rates, land tax and water charges
Landlord insurance
Property agent fees and commissions
Advertising for tenants
Body corporate / strata fees
Repairs and maintenance (more on this below)

The key test: the property must be held to produce assessable income, meaning rented or genuinely available for rent on commercial terms. If you also use it privately - say a holiday home you rent out part of the year - you have to apportion expenses on a fair and reasonable basis.

Repairs vs Improvements: The Distinction That Trips People Up

This is the single most common area of confusion, so it's worth being precise.

Repairs and maintenance (deductible now)

A repair restores something to its original working condition without changing its character - fixing a leaking tap, replacing a few broken roof tiles, repainting a worn wall. Maintenance prevents deterioration, like servicing the heating or oiling the deck. Both are generally deductible in the year you incur them.

Improvements (capital - claimed over time)

An improvement makes the property better, more valuable or more desirable, or changes its character. Renovating a bathroom, adding a pergola, or replacing the whole kitchen are improvements, not repairs. These are capital works and can't be claimed immediately.

Watch out for initial repairs

If you fix damage or defects that existed when you bought the property, that's an "initial repair" - it's capital, even if you didn't know about the problem at purchase. It can't be claimed as an immediate deduction.

Capital Works and Depreciation: Claimed Over Several Years

Two big categories are spread over time rather than deducted up front.

Capital works cover the structure itself - the building, extensions, structural improvements, fixed items like walls and fences. As a general rule you can claim a capital works deduction over 40 years from when construction was completed, at 2.5% per year. (Works that began between 21 August 1984 and 16 September 1987 use a 4% rate over 25 years.) A quantity surveyor's report can help you nail down the figures.

Depreciating assets are the separate, usually mechanical items - dishwashers, air conditioners, carpet, hot water systems, blinds. These decline in value over their effective life. One important catch: since 7:30pm on 9 May 2017, you generally can't claim depreciation on second-hand (previously used) depreciating assets in a residential rental property. Brand-new assets you buy yourself, and assets in properties contracted before that date, are not affected.

For how this interacts with eventual sale, see our capital gains tax basics guide - improvements and capital works affect your cost base later on.

If You Own the Property With Someone Else

Co-owners split rental income and expenses by their legal interest - not by any private agreement about who pays what. Joint tenants each take 50%; tenants in common split by their stated shares (for example 75/25), even if one owner paid all the costs. Get the ownership structure right at purchase - you can't shift the split later to suit your tax position.

Records You Must Keep

You need to be able to prove every claim. Keep:

Rental statements from your agent
Loan documents and interest summaries
Receipts and invoices for all expenses
A depreciation schedule (quantity surveyor's report) if you have one
Records of purchase and sale costs for future CGT

Hold these for at least five years from the date you lodge, and longer where capital gains tax may apply down the track.

Where the ATO Is Looking

Rental claims are a long-running ATO focus area. The most common problems they flag are:

Claiming improvements as repairs to get an immediate deduction
Over-claiming interest when part of the loan was redrawn for private use
Claiming for periods the property wasn't genuinely available to rent
Not apportioning costs for private use or part-year rental
Claiming second-hand depreciating assets that no longer qualify

If you're unsure which side of the line a cost falls on, it's far cheaper to ask before you lodge than to fix an amendment later. Our individual tax returns service includes a proper review of your rental schedule, and our tax planning work can help you structure ownership and borrowing sensibly from the start. You may also find our work-related deductions guide useful if you manage the property yourself.

Frequently Asked Questions

Can I claim the full mortgage repayment on my rental? No. Only the interest portion is deductible. The principal (the part that reduces what you owe) is never deductible. Watch out too if you've redrawn against the loan for personal spending - that portion of interest can't be claimed.

I replaced the whole kitchen - can I claim it this year? Generally no. Replacing an entire kitchen is an improvement (capital works), not a repair, so it's claimed over time rather than as an immediate deduction. Fixing a single broken cupboard door, on the other hand, would usually be a repair.

Can I claim expenses while the property is empty between tenants? Yes, as long as the property is genuinely available for rent on commercial terms during that period - advertised at a realistic rent and not held back for private use. Periods where it isn't truly available can't be claimed.

Let's Get Your Rental Schedule Right

Every property is different, and the repair-versus-improvement line in particular rewards a careful eye. If you'd like a local team that knows St George property and works in plain English, we're here in Mortdale and happy to help.

Book a callback through our contact page or call us on (02) 9580 1167.

This is general information, not personal advice. Tax rules and dates change - please check your situation with us or at ato.gov.au.

Sources (ATO)

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