Australian property investor's guide to tax deductions: What you can write off

Imagine losing a few months’ rent every year from your investment property because you forgot to collect it. You’d be livid with yourself, right?

And yet, property investors lose out on vast sums every year because they don’t understand the full impact that tax deductions can have on their finances.

Don’t be that investor. Tax deductions could be the difference between a rental property that delivers a profitable return and one that doesn’t. 

At Futurerent, we’re committed to helping property investors maximise their returns. In this blog, we’ll talk you through the different tax deductions available to you as an investor in Australia, the relevant regulations, and how to make the most of your residential property investment. 

Below the blog, you can also find a comprehensive list of deductible items. You should always seek professional guidance on tax, and this guide is not intended as a substitute for financial advice, but the advice here provides a general indication.

Understanding Property Tax Basics in Australia

The Australian tax system allows you to deduct a range of expenses associated with property investments from your income tax. In general, if the property is used to generate income (e.g. through rent), your expenses are deductible either in the year you incur them or amortised over a number of years.

This is especially important if you’re negatively geared (where your costs exceed your rental income) because your losses will be deductible. For example, if you make a $5,000 loss on your investment property and earn an income of $80,000, only $75,000 of that income would be taxable.

If the property is your primary residence, those expenses generally won’t be deductible, but you can deduct a proportion if you use it for mixed purposes (e.g. you live in the property for part of the year and rent it out for the rest). In all cases, it’s important to keep receipts and records of your expenses and calculations.

Immediate Tax Deductions for Rental Properties

Some of your expenses will be fully deductible in the year you incur them, including borrowing expenses like the interest payments on your mortgage and other loans. You can also claim taxes, fees, and bills including land taxes, plus council and water rates. 

What about other fees? Are HOA and strata fees tax deductible? Yes, provided that your property is being used for income-generating purposes. Property management fees and insurance premiums are also deductible in the year you incur them.

When it comes to the practical costs like repairs, maintenance, pest control, and cleaning expenses, you can also deduct these costs unless they are capital improvements (e.g. a new kitchen or bathroom). For the latter, you’ll need to depreciate them over time. 

Lastly, the cost of advertising for new tenants and any legal expenses associated with the property can also be deducted in the year you incur the expenses. 

Depreciable Tax Deductions

Not all deductions can be made immediately in full. For capital expenses like building works, fixtures, fittings, and appliances that cost more than $300, you’ll need to calculate the depreciation rather than deducting the full amount straight away.

In essence, the idea is to let you deduct the amount by which these improvements have gone down in value due to age (an old oven is worth less than a new one). In practice, rather than making you calculate the market value of your kitchen cabinets, the ATO has set rules on how you can and should calculate the depreciation.

First, you must be genuinely renting out your property. Second, since 2017 any appliances have to be new in order for you to claim the deduction. 

For ‘low-value pooling’ items, i.e. those that cost up to $1,001, you can claim 18.75% of the value as a deduction in the first year, and 37.5% in subsequent years. 

Items over that amount are classed as depreciating assets. Permanent fixtures include built-in ovens or fridges and the standard depreciation that you can deduct is 2.5% over 40 years. 

For freestanding appliances, the ATO has guidelines on estimated lifespans. You can use those estimates to deduct either a fixed percentage of the remaining value or an equal portion of the purchase price each year.

The exception is repairs and replacements. Provided you replace an item like-for-like, the cost could be fully deductible.

To make sure you claim the correct amounts and have all the proper evidence, keep all your receipts and consider employing a professional quantity surveyor to prepare a tax depreciation schedule. The schedule sets out which assets are eligible for what level for deduction. The ATO accepts these schedules as evidence for tax claims.

Travel Expenses for Rental Property Management

Can you claim travel expenses as tax deductions? If you have multiple properties, spread over a long distance, this may be no small expense that we’re talking about.  Since 2017, the ATO has required that you be “in the business of letting rental properties” to claim travel expenses as tax deductions.

“But I am in the business of letting rental properties!” we hear you cry. Alas, it isn’t that simple. The ATO doesn’t consider an individual who rents out investment properties to be “in the business”. Instead, you need to be a corporate tax entity or similar. If you manage your properties through a registered company, therefore, you can deduct travel costs from your corporation tax.

Apart from incorrectly claiming travel expenses as individuals, the biggest mistake you can make with travel expenses as an investor is to not keeping written records showing where and when you travelled, and the expenses you incurred. Those records could include a travel diary or receipts for items like tickets, fuel, or accommodation.

Mortgage Interest and Loan Costs

Can you deduct mortgage interest payments? Interest payments on mortgages or loans for improvements can be deductible provided that the property is being used for income-producing purposes. 

Generally, they’re deductible in the year that you pay them, while one-off fees like establishment fees may need to be amortised over the lifespan of the loan or five years, whichever is shorter.

Property Losses and Capital Gains

As well as tax, expenses, and borrowing costs, you can also write off losses on your rental income if you’re negatively geared. 

By calculating your rental income versus your mortgage expenses, council rates, maintenance costs, management fees and other expenses, you can calculate the level of your loss and deduct that from your taxable income. This assumes that you have other income, from a full-time job or other investments, that you essentially use to subsidise your investment property.

For CGT, you can’t offset the costs of negative gearing, but you can deduct losses from other sales in the same or previous years. To reduce CGT, you can also hold your property for more than 12 months to qualify for a 50% CGT discount or use strategies like selling in a lower-income year to reduce the tax impact.

Common Mistakes and Tax Audit Red Flags

Given the complex rules around tax deductions, it’s easy to make mistakes. 

The most common errors that investors make are mixing personal and investment expenses or overclaiming on deductions. Remember only expenses associated with income-producing properties are tax deductible. If a property is for mixed purposes, you need to apportion the deductible expenses and show evidence. 

At the same time, there are specific rules like those around depreciation that you need to adhere to. Other landlords fail to declare their rental income as taxable income at all. Any of these errors could land you in trouble with the ATO.

Investors with poor record-keeping practices are prime candidates for these mistakes. If you’re not certain about what you submit, there’s a good chance you’ll make a mistake. Others make the mistake of completing DIY tax returns, even when they have the kind of large, complex returns that make professional advice so important.

Maximising Your Tax Position as a Property Investor

There are several strategies that can help you get the most out of your position as a property investor. Consider:

1. Tax planning strategies: Review your rental income, deductions, and depreciation schedules throughout the financial year to maximise your benefits and reduce your liabilities.
2. Timing: Deferring rental income or bringing forward deductible expenses to the current tax year can help to reduce your tax bill. Some depreciation expenses can be claimed in full, even if you incur them very late in the financial year.
3. Ownership structure considerations: Some expenses can only be deducted if you operate as a commercial entity, so assess which deductions could give you the most value and consider structuring your ownership model appropriately.

If you’re concerned about how the costs of refinancing will impact your tax deductions, consider using Futurerent to access upfront rental income instead. That income can not only be used to cover expenses, it could reduce your tax bill. With Futurerent, only income you receive after Futurerent’s share of the rent is deducted is taxable, potentially reducing the tax you pay.

Maximising tax deductions is key to ensuring your investment property delivers strong financial returns. By understanding immediate deductions, depreciation rules, and negative gearing benefits, you can significantly reduce your taxable income and improve your cash flow.

Given the frequent changes in tax laws, staying informed about deduction eligibility, ownership structures, and compliance requirements is essential to avoid costly mistakes and ATO scrutiny.

For personalised tax advice, consult a qualified tax professional to ensure you’re claiming deductions correctly. If you’re looking for a smarter way to manage cash flow and tax deductions, explore Futurerent’s solutions for accessing upfront rental income without impacting your borrowing capacity.

FAQs

Can you write off real estate taxes?
Yes, land tax and council rates are tax-deductible if the property is used for income-producing purposes. However, these taxes are not deductible for owner-occupied properties.

What tax write-offs are available for rental properties?
Rental property owners can deduct expenses such as loan interest, land tax, council rates, property management fees, insurance, maintenance, and repairs. Depreciation can also be claimed on eligible assets over time.

Can you write off HOA fees on a rental property?
Yes, HOA fees (or strata fees) are tax-deductible if the property is used to generate rental income.

Can you write off a loss on the sale of an investment property?
Yes, capital losses from selling a property can be used to offset capital gains in the same year or carried forward to reduce future capital gains. However, capital losses cannot be used to offset regular taxable income.

Can you write off mortgage interest on a rental property?
Yes, mortgage interest is tax-deductible for investment properties, provided the loan is used for income-producing purposes. However, principal repayments are not deductible.

Can you write off travel expenses for a rental property?
Only corporate tax entities and certain trusts can deduct travel expenses related to rental properties. Individuals cannot claim travel costs for managing rental properties unless they operate as a business under ATO guidelines.

Tax-Deductible Items for Australian Residential Property Investors

Property Acquisition Costs

• Loan establishment fees
• Mortgage broker fees
• Lenders Mortgage Insurance (LMI)
• Conveyancing and legal fees related to property purchase
• Stamp duty on mortgage (not on property purchase)
• Valuation fees
• Building and pest inspection fees
• Quantity surveyor fees for depreciation schedules
• Title search fees
• Mortgage registration fees

Loan and Finance Expenses

• Mortgage interest payments
• Bank fees related to investment property accounts
• Early repayment fees
• Interest on loans for property improvements
• Line of credit fees for property investment
• Loan application fees
• Mortgage discharge fees when refinancing
• Interest on credit cards used for property expenses

Property Management Expenses

• Property management fees
• Letting fees
• Lease preparation fees
• Lease renewal fees
• Tenant background check costs
• Property inspection costs
• Advertising for tenants
• Costs of serving notices to tenants
• End of lease cleaning costs (when tenant vacates)
• Costs for attendance at tribunal hearings

Insurance Costs

• Landlord insurance premiums
• Building insurance
• Contents insurance for furnished properties
• Public liability insurance
• Rent default insurance
• Mortgage protection insurance
• Flood insurance (where applicable)
• Income protection insurance (portion related to protecting rental income)

Rates and Taxes

• Council rates
• Water rates (fixed component)
• Land tax
• Emergency services levy
• Metropolitan fire levy
• Regional improvement levies
• Waste management charges

Body Corporate/Strata Fees

• Strata management fees
• Administrative fund contributions
• Sinking fund contributions
• Special levies (if for repairs, not improvements)
• Building insurance paid through strata
• Building compliance costs

Repairs and Maintenance

• Plumbing repairs
• Electrical repairs
• Hot water system repairs
• Air conditioning repairs
• Appliance repairs
• Gutter cleaning
• Lawn mowing and garden maintenance
• Pest control
• Cleaning common areas
• Lock and key replacements
• Pool maintenance
• Painting (as maintenance, not improvement)
• Fence repairs
• Roof repairs
• Window repairs
• Servicing of essential equipment (heating, cooling systems)

Utilities (when paid by owner)

• Electricity connection fees
• Gas connection fees
• Water usage charges
• Internet service (if provided as part of rental)
• Pay TV/cable (if provided as part of rental)

Property Protection Expenses

• Security system monitoring fees
• Smoke alarm servicing and battery replacement
• Safety inspections
• Fire extinguisher servicing
• Pool safety compliance costs
• Carbon monoxide detector maintenance

Professional Services

• Accounting fees for tax return preparation
• Tax advice related to investment property
• Legal fees for property management issues
• Financial advisor fees (property investment portion)
• Bookkeeping services for rental property
• Fees for attending property investment seminars
• Subscriptions to property investment publications
• Membership fees for property investor associations

Depreciation Deductions

• Building depreciation (capital works deduction)
• Fixture and fitting depreciation
• Plant and equipment depreciation
• Carpets and flooring
• Blinds and curtains
• Light fittings
• Air conditioning units
• Ovens and cooktops
• Dishwashers
• Refrigerators (if supplied)
• Washing machines (if supplied)
• Dryers (if supplied)
• Hot water systems
• Security systems
• Intercom systems
• Solar panels
• Built-in furniture

Travel Expenses (with limitations)

• Travel to inspect property (records required)
• Travel for emergency repairs
• Travel to collect rent (if not using property manager)
• Travel to meet with property manager, tradespeople or tenants
• Accommodation costs (when traveling to remote property)
• Meal costs during legitimate property travel

Home Office Expenses (property management portion)

• Portion of internet costs used for property management
• Portion of computer use for property management
• Portion of phone costs for property management
• Stationery and printing costs
• Postage for property-related documents
• Software subscriptions for property management
• Home office equipment depreciation

Sundry Expenses

• Bank charges on property investment accounts
• Postage and stationery for property correspondence
• Property management software
• Property inspection tools and equipment
• Tenant gifts (reasonable and business-related)
• Property research costs
• Property investment education costs
• Record keeping expenses

Pre-Purchase Expenses

• Research costs (property reports, market analysis)
• Travel costs to inspect properties before purchase
• Property consultant fees
• Buyer's agent fees
• Membership fees to property investment groups

Negative Gearing Related

• Tax losses from rental property can offset other income
• Carrying costs during vacancy periods
• Costs during renovation periods when property is not earning income

Capital Improvements (Capital Works Deductions)

• Bathroom renovations
• Kitchen renovations
• Room additions
• Structural alterations
• Rewiring
• Replumbing
• Retiling
• Driveway construction
• Fencing installation
• Built-in wardrobes
• Structural landscaping
• Patio construction
• Deck additions

Remember that this list is comprehensive but general in nature. The deductibility of specific items can depend on individual circumstances, the property's specific use, and current tax legislation. Property investors should always consult with a qualified tax professional for advice tailored to their situation and to ensure compliance with the latest Australian tax laws.