Complete guide to claiming tax deductions for a Sydney investment property, from interest and repairs to depreciation and council rates.
Business & Markets Desk is a contributing writer covering guides and public affairs for The Sydney Times.
The Australian Taxation Office allows landlords to claim deductions for any expense incurred in earning rental income, provided they paid the expense themselves and have records to prove it. Common claims include loan interest, council rates, insurance, repairs, maintenance, property management fees, and depreciation. You cannot claim expenses of a private or capital nature, such as the cost of purchasing the property itself or improvements that add a new feature.
Rental property deductions are reported in the "Rental properties" section of your individual tax return. If you have a loss from your rental property, that loss can offset other income in most cases, subject to the non-commercial loss rules. If you are a foreign resident, different withholding rules apply to rental income.
Before you lodge, collect every document related to the property for the income year, which runs from 1 July to 30 June. You will need:
You must keep these records for five years from the date you lodge your tax return. Digital copies are acceptable as long as they are clear and legible.
Interest on the loan you used to purchase the rental property is deductible for the period the property was available for rent. If you rented the property for the full year, the full year of interest is deductible. If you bought the property partway through the year or used it for private purposes for part of the year, apportion the interest accordingly.
Council rates, water charges, and strata levies are also deductible in the year you pay them. If your property is in a strata building, keep the strata levy statements because they often include a mix of deductible operating expenses and non-deductible capital works contributions. The capital works component is claimed separately through the depreciation schedule.
Repairs and maintenance are deductible in the year you incur them, provided they are for damage or wear and tear that existed when the property was rented. Examples include fixing a broken window, painting walls, repairing a leaking roof, or replacing a damaged carpet.
Improvements that add a new feature or substantially alter the property are not immediately deductible. They are capital works items and must be claimed over time through depreciation. If you are unsure whether a particular expense is a repair or an improvement, seek advice from a registered tax agent or quantity surveyor before lodging.
Keep receipts for every repair and maintenance job. If you did the work yourself, you cannot claim a deduction for your own labour. You can only claim for materials and any payments you made to contractors.
Depreciation is one of the largest deductions available to landlords, yet many first-time investors fail to claim it because they do not have a depreciation schedule. A quantity surveyor inspects your property and produces a schedule showing the decline in value of the building structure (capital works) and the plant and equipment items such as carpets, blinds, and hot water systems.
You do not need to engage a quantity surveyor before you lodge your return, but you must have a schedule in place before you submit. The ATO accepts a schedule prepared by a registered quantity surveyor even if the inspection takes place after the end of the income year, as long as the surveyor can verify the property's condition and construction date.
The ATO's myTax system has a depreciation and capital allowances tool that can help you work out the deduction if you do not have a quantity surveyor's schedule. However, the tool is less accurate for complex properties or properties with significant renovations.
Property management fees, advertising costs, and agent commissions are fully deductible in the year you pay them. If you manage the property yourself, you can claim reasonable expenses for advertising, tenant screening, and rent collection, but you cannot claim a deduction for your own time.
Bank fees on a rental-property account, insurance premiums for landlord insurance, and accounting or tax agent fees related to the rental property are also deductible. Keep these expenses separate from your personal banking and records to simplify record keeping.
If you used the rental property for private purposes at any time during the year, such as a holiday or a family gathering, you must apportion your expenses to reflect the period it was available for rent. The ATO expects you to maintain a log or diary showing when the property was rented, when it was vacant, and when it was used privately.
For holiday homes that are rented out for part of the year and used privately for the rest, the apportionment rules are strict. If you do not genuinely seek tenants and set a market rent for the private-use period, the ATO may disallow some or all of your deductions.
You can report rental income and expenses through myTax if your affairs are straightforward. Log in to myGov, select the ATO, and go to the "Rental properties" section. Enter your total rental income, then add each category of expense. If you have a depreciation schedule, enter the capital works and plant and equipment amounts in the depreciation and capital allowances tool.
If your property affairs are complex, such as a co-owned property, a property with significant capital improvements, or a property that you sold during the year, consider using a registered tax agent. Agents can also advise on whether your rental loss is subject to the non-commercial loss rules and can help you avoid common audit triggers.
Direct inquiries, corrections, or documentation concerning this dispatch to our editorial newsroom desk.
Step-by-step guide to planning and deploying a UniFi home network in Australia, including NBN compatibility and cabling rules.
Complete guide to claiming the NSW toll relief rebate if you spend more than $60 a week on toll roads.
Complete guide to claiming working-from-home expenses on your Australian tax return using the ATO fixed rate or actual cost method.
Step-by-step guide to getting NBN connected when you move house, from checking availability to activating your internet.