For Australian property investors, getting your head around tax deductions for a rental property isn’t just about trimming your tax bill. It’s a cornerstone of savvy investing. When you claim every expense you’re entitled to, you can legally slash your taxable income by thousands, which directly juices your annual return and improves your cash flow. It can honestly be the difference between a good investment and a great one.
Think of your rental property as a small business. Like any business, the goal is to make a profit while playing by the rules. The money you spend to earn your rental income is simply the cost of doing business, and the Australian Taxation Office (ATO) lets you offset these costs against your earnings. For a landlord in Melbourne or Sydney, this could be what separates a negatively geared property that provides welcome tax relief from a positively geared one with a surprisingly steep tax bill.
But here’s the catch: it’s not a free-for-all. The ATO is taking a much closer look at landlord tax returns for the 2024–25 financial year, with new scrutiny on property-related claims. In fact, they recently found that a staggering 9 out of 10 rental property owners make errors in their tax returns, usually by overclaiming deductions. It’s well worth reading up on the ATO’s crackdown on rental property claims to see just how serious they are. Emphasising ATO compliance is key to avoiding trouble.
To get started, we need to nail down the two main categories of property tax write-offs in Australia. Everything flows from this.
Key Takeaway: The number one mistake landlords make is mixing up an immediate repair with a long-term improvement. Fixing a leaking tap is an immediate deduction. Renovating the entire bathroom is a capital improvement you claim over many years.
Let’s put this into perspective. Imagine a first-time investor in Perth who decides to rent out their old home mid-year. Without the right advice, they could easily miss out on thousands in depreciation for their rental property—a ‘non-cash’ deduction they don’t even have to spend money on each year. They might also mistakenly try to claim the cost of initial repairs done before the first tenant moved in, which is a massive red flag for the ATO.
Mastering these rules is how you legally maximise your return. Once you understand what goes where and keep meticulous records, you can confidently claim every dollar you’re entitled to. It’s how you turn a simple property investment into a well-oiled financial machine. This guide will walk you through exactly how to do it.
When we talk about tax deductions for landlords, your immediate expenses are the real workhorses of your annual tax return. Think of these as the everyday running costs you pay to keep your property ticking over and generating that rental income. The great thing about these expenses is that you can claim 100% of them in the same financial year you paid for them. This gives you an instant, direct reduction in your taxable income—unlike bigger costs that are claimed over many years.
Let’s dive into the most common and important immediate property tax write-offs in Australia so you can be confident you’re not leaving any money on the table.
For almost every property investor, the interest you pay on your mortgage will be your single biggest deduction. It’s crucial to get this right: you can only claim the interest part of your loan repayments, not the principal component that actually pays down the loan. The principal is a capital expense because it’s building your equity in the asset.
Each year, your lender will send you an annual statement that clearly breaks down how much interest you’ve paid. This document is absolute gold for your rental property tax return tips, so keep it somewhere safe.
Those quarterly council rate notices are a welcome sight come tax time because they are fully deductible. The same goes for any charges for water supply and usage, as long as your tenant isn’t required to pay these bills directly under your lease. A quick heads-up: if your tenant does reimburse you for their water usage, you have to declare that reimbursement as income.
If you’ve handed the reins over to a real estate agent or a professional property manager, their fees are an immediate deduction. This is probably one of the most straightforward landlord tax tips 2025.
These fees usually cover a few different things:
The costs to fix general wear and tear that occurs while the property is rented out are deductible. It is critical to clarify the difference between repairs vs. improvements: repairing a broken window is deductible now, but replacing all windows to upgrade the home is a capital improvement claimed over time.
Insurance is a non-negotiable part of owning a rental, and thankfully, every dollar you spend on premiums is fully deductible. You’ll want to make sure you claim rental property expenses for every policy connected to the property.
Common types of deductible insurance include:
Own an apartment, townhouse, or a unit in a strata complex? Your regular body corporate or strata levies are immediately deductible. These fees go towards maintaining all the shared spaces—think gardens, lifts, pools, and foyers. One important detail to watch out for: if your levies include a contribution to a special sinking fund for major capital works (like replacing the entire roof), that portion can’t be claimed immediately. It generally needs to be treated as a capital works deduction.
ATO Compliance Tip: Always double-check your strata levy notice. If a portion is specifically marked for a ‘special purpose fund’ or ‘capital works fund’, you can’t claim it upfront. That part has to be treated as a capital works expense under Division 43.
Any money you spend to find a new tenant can be claimed right away. This includes listing your property on sites like realestate.com.au or Domain, placing ads in the local paper, or even just the cost of a “For Lease” sign out the front.
Keeping your property in good nick is not just good sense—it’s also good for your tax return. The costs to fix general wear and tear are deductible. This includes your annual pest control, paying for lawn mowing, or the cost of a professional clean between tenants.
The money you spend on professional help to manage your investment’s finances is also a write-off. You can claim the fees you pay your accountant to prepare your tax return or provide rental-specific tax advice. Likewise, any legal fees for things like drafting a lease agreement or evicting a non-paying tenant are also deductible.
Getting this right is crucial. This is one of the trickiest areas for property investors and, not surprisingly, a major focus for the ATO when they look over a rental property tax return. If you misclassify an expense, you could face disallowed claims and even penalties. The core idea is simple: maintenance is your regular upkeep, a repair fixes something that’s broken, and an improvement makes something better than it was before.
This distinction is one of the most important landlord tax tips 2025 because the tax treatment for each is completely different.
This infographic breaks down the difference between immediate write-offs (deductible) and costs you claim over time (non-deductible now).
From the ATO’s perspective, a repair is any work done to fix wear, tear, or damage that happened while you were renting out the property. You’re just putting an asset back into its previous working state—not making it better. For example, your tenant in a Melbourne apartment calls to say the shower head is leaking. Getting a plumber to fix that specific leak is a classic repair.
ATO Focus: A repair typically involves replacing a part of something, not the whole item. If your entire hot water system bursts and you replace the whole unit, the ATO will likely view this as replacing the entire asset. That pushes it into the improvement category.
An improvement makes an asset better, more valuable, or fundamentally changes its character. Let’s look at some real-world scenarios:
Getting this right is fundamental for claiming correct tax deductions for a rental property.
Any work you do to fix defects, damage, or deterioration that was already there when you purchased the property is classified as an initial repair. The ATO is very clear on this: these are not immediately deductible repairs. Instead, these costs are considered part of acquiring the property and must be treated as a capital expense.
While claiming immediate expenses gives you some relief each year, depreciation for rental property ATO is the real powerhouse. This is the deduction that can save you thousands over the long haul, and it’s often the single largest claim an investor can make. The best part? It’s a non-cash deduction. You don’t actually have to spend any money during the year to claim it.
The ATO splits depreciation into two key categories:
First up is Division 43, which covers capital works. This is all about the building’s core structure: foundations, walls, roof, windows, and doors. It also includes big-ticket projects like a kitchen renovation or adding a pergola. For most residential properties built after September 1987, you can generally claim a deduction at 2.5% per year for 40 years. That’s a potential $10,000 deduction every year on a building with a $400,000 construction cost. You can read up on the rules in the ATO’s latest rental guide.
The second category, under Division 40, is for Plant & Equipment. These are all the removable or mechanical assets inside your property. Think of the things that have a much shorter lifespan than the building itself.
Common examples include:
Each of these items has an “effective life” set by the ATO, and you claim its decline in value over that specific timeframe.
Quote: “Getting a tax depreciation schedule is the single best investment a landlord can make. It’s a one-off fee that uncovers deductions for 40 years.”
The smartest and most compliant way to calculate depreciation is to hire a qualified quantity surveyor. They prepare a comprehensive tax depreciation schedule. This one-off report is your roadmap, detailing every single depreciable item and the exact deduction you can claim for it each year. Best of all, the fee you pay for the report is 100% tax deductible.
You can only claim deductions for the portion of an expense that directly relates to producing rental income.
You can generally claim holding costs (loan interest, rates) for a vacant property as long as it is genuinely available for rent (i.e., advertised and ready for tenants).
Feeling confident about your tax deductions for a rental property is key to successful investing. The rules can be complex, especially with the tax measures promoting housing affordability and ongoing ATO scrutiny. We specialise in helping landlords across Australia navigate property tax to ensure compliance and maximise returns.
Take control of your rental property finances and book a consultation with us today!
The information on this website is for general informational purposes only and should not be considered financial, taxation, or legal advice. While we strive for accuracy, Nanak Accountants does not guarantee the completeness or reliability of the content. Laws and regulations change over time, and we recommend consulting a qualified professional before making any financial or business decisions. Nanak Accountants is not liable for any loss or consequences arising from reliance on this information. For personalised advice, please contact Nanak Accountants directly.
