What property investors can claim at tax time
Australian tax law is generous to property investors. The ATO allows you to claim the costs of owning and operating a rental property as deductions against your rental income — and in many cases against your other income too.
Immediately deductible expenses
These are claimed in full in the year you incur them:
- Loan interest — the interest portion of your mortgage repayments is fully deductible
- Property management fees — including letting fees, inspection fees, and the annual management percentage
- Council rates and water rates
- Landlord and building insurance
- Repairs and maintenance — fixing things that are broken, but not improvements (which are depreciated)
- Advertising for tenants
- Accounting and tax agent fees for the rental property
- Strata or body corporate levies
- Pest control and gardening if required to maintain the property
- Cleaning costs between tenancies
- Travel costs — note: from 1 July 2017, investors can no longer claim travel to inspect a residential rental property
Depreciation (non-cash deduction)
This is where most investors leave money on the table. The ATO allows you to claim two types of depreciation:
Division 40 — Plant and equipment: The declining value of assets such as ovens, dishwashers, air conditioners, ceiling fans, hot water systems, carpets, and blinds. The rate depends on the ATO's effective life ruling for each item.
Division 43 — Capital works: The building structure itself — walls, roof, floors, and any fixed structural improvements — is claimed at 2.5% per year (for residential buildings built after July 1985).
A tax depreciation schedule prepared by a quantity surveyor calculates both for you.
Borrowing costs
If you borrowed money to purchase the property, associated borrowing costs (loan establishment fees, mortgage broker fees, lenders mortgage insurance) are deductible over the lesser of five years or the loan term.
Capital items added to your cost base
Some costs cannot be claimed as deductions but are added to your cost base to reduce capital gains tax when you sell. These include stamp duty, legal costs on purchase, and capital improvement costs.
Records you will need
The ATO requires you to keep records for five years after the date you lodge your tax return or five years after the disposal of the property. Records include receipts, invoices, bank statements, and your depreciation schedule.