UNDERSTANDING TAX DEDUCTIONS FOR RENTAL PROPERTIES IN AUSTRALIA

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June 17, 2025 | pwsbuilder |

Owning a rental property in Australia can be a sound investment, particularly when it comes to the potential tax benefits. The Australian Taxation Office (ATO) allows property investors to claim a wide range of deductions that can significantly reduce taxable income and increase the return on investment. However, it’s important to understand what can and cannot be claimed, and how timing and purpose affect deductibility.

TYPES OF RENTAL PROPERTY DEDUCTIONS

There are three main categories of expenses landlords can claim: immediate deductions, capital works deductions, and depreciation on assets.

  1. Immediate Deductions

Expenses that are incurred in the day-to-day management and maintenance of a rental property can typically be claimed in full in the year they are incurred. These include:

  • Property management fees and advertising for tenants
  • Council rates and water charges
  • Land tax (if applicable)
  • Repairs and maintenance (e.g. fixing a leaking tap or broken fence)
  • Insurance premiums (e.g. building, contents, landlord)
  • Interest on investment loans
  • Legal expenses related to the rental activity (not the purchase of the property)

It is critical to distinguish between repairs and improvements. Repairs (restoring something to its original condition) are deductible immediately, whereas improvements (enhancing value or functionality) are considered capital expenses.

  1. Capital Works Deductions

These deductions relate to the building structure and any permanent fixtures. Owners can typically claim a 2.5% deduction per year over 40 years for buildings constructed after 16 September 1987. Renovations such as replacing a roof or adding a garage may also qualify for capital works deductions. This deduction must be spread over time and cannot be claimed in one go.

  1. Depreciation on Assets

Depreciation allows landlords to claim a decline in value of certain household items and fittings such as:

  • Appliances (e.g. ovens, dishwashers, air conditioners)
  • Furniture
  • Carpets and blinds

However, since changes introduced in 2017, depreciation on previously used assets in second-hand residential properties can no longer be claimed unless the property was purchased before 7:30pm on 9 May 2017. New properties or new assets can still be depreciated.

KEY CONSIDERATIONS

  • Record Keeping: Accurate documentation is vital. Keep receipts, contracts, loan documents, and depreciation schedules.
  • Private Use: Expenses related to private use of the property (e.g. if the owner lives in it for part of the year) must be apportioned accordingly.
  • Vacant Properties: You can still claim deductions for a property that is vacant, provided it’s genuinely available for rent.

PROFESSIONAL ADVICE MATTERS

Tax rules are complex and subject to change. Consulting a tax accountant or specialist in property taxation can help ensure that investors maximise their deductions without breaching ATO rules.

By understanding what deductions are available and how to apply them correctly, rental property owners in Australia can significantly reduce their tax burden and improve the overall profitability of their investment.

Let me know if you’d like to explore how to create a depreciation schedule or get tips on keeping rental property records.

Disclaimer: This document should not be interpreted as tax advice. All information is of a general nature only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.