A rental property comes with a long list of deductible expenses — and an equally long list of ways to get them wrong. Rental claims are a perennial ATO audit focus, and the ATO now matches data from banks, property managers, land title offices and landlord insurers against what appears in your return. The good news: if you understand a handful of rules and keep decent records, claiming confidently is straightforward.
Here is what you can deduct immediately, what has to be spread over many years, what is off-limits entirely, and the areas where the ATO looks hardest.
What you can claim straight away
While your property is rented, or genuinely available for rent, most of the ongoing costs of holding and managing it are deductible in the year you pay them:
- interest on the loan used to buy the rental property (the interest component only — not the principal)
- property agent fees and letting commissions
- council rates, land tax and water charges you pay as the owner
- building, landlord and contents insurance
- repairs and maintenance (more on the fine print below)
- advertising for tenants
- body corporate fees for day-to-day administration (special levies for capital improvements are capital, not immediate deductions)
- gardening, pest control and cleaning between tenants
Repairs or improvements? The distinction that matters most
A repair fixes damage or deterioration that happened while you were renting the property out, and restores the item to the condition it was in before. Repairs are deductible in full in the year you pay for them. An improvement goes further — it replaces an entire structure, upgrades to something better, or adds something new. Improvements are capital works under Division 43, generally claimed at 2.5 per cent a year over 40 years. See the ATO's guidance on repair and maintenance expenses.
| What you did | How it's treated | When you claim it |
|---|---|---|
| A storm breaks several fence palings and you replace just those palings | Repair | In full, this year |
| The fence is past it, so you replace the whole thing end to end | Capital works (Division 43) | 2.5% a year over 40 years |
| You patch and reseal a leaking section of the roof | Repair | In full, this year |
| You rip out a dated but functional kitchen and install a new one | Improvement (capital works) | 2.5% a year over 40 years |
Depreciation: claiming the wearing out
Two separate systems apply. Division 40 covers plant and equipment — carpets, blinds, appliances, hot water systems, air conditioners — which you depreciate over each asset's effective life. Division 43 covers the building itself: construction costs are generally claimable at 2.5 per cent a year where the property was built after September 1987, along with structural improvements like fences and driveways.
There is a significant catch for residential landlords. If you bought the property after 7:30pm (AEST) on 9 May 2017, you cannot claim depreciation on the second-hand plant and equipment that came with it — the existing oven, carpets and dishwasher are out. You can still depreciate brand-new assets you buy for the property yourself, and the capital works deduction on the building is unaffected.
What you can't claim
- Travel to inspect or maintain the property. Since 1 July 2017, individual landlords cannot claim travel costs for a residential rental — not the drive across town, not the flight to the Gold Coast.
- Loan principal. Only the interest component of your repayments is deductible.
- Expenses while the property isn't genuinely available for rent. A property advertised at an unrealistic rent, with unreasonable conditions, or only among friends is not genuinely available — and neither is one you're using yourself.
- Initial repairs. Fixing defects that existed when you bought the property is capital, even if you do the work in your first week of ownership. These costs may qualify as capital works or form part of the property's cost base instead.
- Purchase and sale costs. Stamp duty and conveyancing fees are not deductible — they go into the cost base for capital gains tax when you eventually sell.
Apportioning: when only part is deductible
Deductions must reflect actual income-producing use. If the property was only rented (or genuinely available) for part of the year, you claim expenses for that part only. If you use a holiday home yourself for four weeks a year, those weeks come out of the claim. If you rent out one room of your home, expenses are typically apportioned on a floor-area basis. And if you rent to family or friends at below-market rent, deductions are generally capped at the rent you actually received.
Keep records like the ATO is watching
Keep your loan statements, agent annual statements, invoices, receipts and depreciation schedule for at least five years after you lodge. Note the dates the property was available for rent and any personal-use periods. Hold on to records of capital costs — purchase documents, improvements, sale costs — until at least five years after you sell, because they determine your capital gains tax position.
How a registered tax agent helps
Rental schedules are where returns most often go wrong: repairs misclassified as improvements (or the reverse), interest over-claimed on redrawn loans, and depreciation left unclaimed entirely. We prepare rental property schedules as part of your return, get the repairs-versus-capital split right the first time, and make sure every deduction you're entitled to is in there — with the records to back it up. If you'd like your FY2025–26 return handled properly, get in touch with our team.