The legal ways to reduce tax on your rental property
Owning an investment property in Australia comes with a significant tax advantage: the ATO allows you to deduct a wide range of expenses from your rental income, and in many cases against your salary. Here is how to make the most of every dollar.
1. Claim all your operating expenses
Every dollar you spend running your investment property can reduce your tax bill. Common deductions include:
- Property management fees
- Council rates, water rates and land tax
- Landlord insurance
- Loan interest (the most significant deduction for most investors)
- Repairs and maintenance (not improvements)
- Advertising for tenants
- Accounting fees related to the property
2. Claim tax depreciation
This is the most commonly missed deduction. The ATO allows you to claim the declining value of the building structure (Division 43 capital works) and the fixtures and fittings inside (Division 40 plant and equipment). Unlike other deductions, you do not need to spend money each year to claim depreciation — it is a non-cash deduction that reduces your taxable income automatically.
A professional tax depreciation schedule from a quantity surveyor calculates exactly what you can claim each year.
3. Use negative gearing
If your property expenses — including depreciation — exceed your rental income, you have a net rental loss. That loss can be used to reduce your taxable income from other sources, such as your salary or business income. This is called negative gearing and is a legal and widely used tax strategy in Australia.
4. Amend prior years if you missed deductions
If you forgot to claim depreciation in previous years, you can ask the ATO to amend up to two years of prior tax returns (or four years if you are a small business). A backdated depreciation schedule can unlock thousands of dollars in missed deductions.
5. Manage your cost base for when you sell
Some costs that are not immediately deductible can be added to your cost base and reduce your capital gains tax when you eventually sell. A quantity surveyor report helps you track all capital improvement costs.
6. Time your deductions strategically
If you are doing a major renovation, scrapping worn-out assets before demolition can give you an immediate deduction for their remaining depreciation value rather than waiting years to claim it through the normal schedule.
Get professional help
Tax law is complex. Working with a tax agent who understands property investment — and ordering a professional depreciation schedule — are two of the most effective things you can do to legally reduce your tax.