The two rules every Australian landlord needs to remember
Almost every "is this deductible?" question collapses into two principles the ATO has used since the 1936 Income Tax Assessment Act:
- Revenue vs capital. If the expense keeps the property earning rent at its current condition, it's revenue (deductible now). If it improves the property or extends its life, it's capital (depreciated over time).
- Connection to rental income. The expense must relate to a property that is rented or genuinely available for rent. Holiday houses you use yourself, properties advertised at above-market rents, and pre-tenancy "initial repairs" all fail this test.
Division 40 vs Division 43 — the bit most landlords leave on the table
Depreciation is paper money — a deduction without a matching cash outflow. It's also the single biggest reason landlords under-claim. There are two regimes:
- Division 40 (plant & equipment): dishwashers, ovens, blinds, carpets, hot water systems, ceiling fans. Effective lives of 4–10 years. Since 9 May 2017, second-hand items in established residential property are not claimable by subsequent owners — but anything you install new still is.
- Division 43 (capital works): the building itself, plus structural improvements like a new bathroom, a pergola, or fencing. 2.5% of construction cost per year over 40 years for residential builds completed after 17 July 1985.
A quantity surveyor's depreciation schedule costs $400–$700 once and pays for itself in year one for almost any post-1987 property. The ATO accepts QS schedules; it does not accept your own estimates.
Repairs vs improvements — where audits happen
Replacing three broken roof tiles is a repair (deductible now). Replacing the entire roof with Colorbond is an improvement (Division 43 over 40 years). Painting a tired bedroom is a repair; repainting the whole house in a new colour scheme to attract better tenants leans toward improvement. The ATO's published guidance (TR 97/23) talks about whether the work restores function or enhances it.
The safest rule: if the work makes the property meaningfully better than the day you bought it, treat it as capital. If you'd describe it as "fixing what broke", it's a repair.
State quirks worth knowing
- NSW & VIC land tax: often the second-largest deduction after interest. Threshold $1.075m (NSW 2024) and $50k (VIC 2024) — VIC's low threshold catches many investors.
- QLD: introduced extra land tax surcharges for foreign investors; no impact on resident citizens.
- ACT: stamp duty is being phased out and replaced with annual land tax — the annual charge is deductible (the stamp duty was not).
- WA & SA: standard land tax regimes, lower thresholds than NSW.
What records the ATO expects you to keep
Five years from the date you lodge the return that includes the deduction. For depreciation, five years from the last claim — which on a 40-year capital-works schedule means you keep the original construction cost evidence for the life of the property plus five.
Acceptable evidence: bank statements, tax invoices, agent statements, the QS depreciation schedule, settlement statement, and loan documents. Receipts on a phone photo are fine — the ATO accepts digital copies.
Frequently asked questions
What can I claim as a tax deduction on a rental property in Australia?
Loan interest (investment portion only), council rates, land tax, water service charges, landlord insurance, strata admin levies, property management fees, advertising for tenants, cleaning, pest control, gardening, repairs and maintenance, Division 40 depreciation on plant and equipment, Division 43 capital works at 2.5% per year, and bookkeeping fees. Travel to inspect residential property has not been deductible for individuals since 1 July 2017.
Is stamp duty tax deductible on an investment property?
No. Stamp duty on the property purchase is not deductible against rental income in Australia. It is added to the cost base of the property and reduces capital gains tax when you sell. The exception is stamp duty on the lease itself in the ACT, which is deductible.
Are renovations to a rental property tax deductible?
Not as an immediate deduction. Renovations are capital works and depreciate at 2.5% per year over 40 years under Division 43. Renovations done before the property is first rented are "initial repairs" and cannot be claimed as repairs at all — they are capital. Genuine repairs to restore the property to its prior condition are deductible in the year paid.
Are mortgage repayments tax deductible on a rental property?
Only the interest portion is deductible — not the principal repayment. If you have an interest-only loan, the whole repayment is deductible. If you have a principal-and-interest loan, your bank statement or annual interest summary will show the deductible interest split out.
Is land tax deductible on an investment property?
Yes. Land tax is fully deductible against rental income in the financial year it is incurred. Each Australian state and territory levies land tax differently with its own threshold, so the amount varies by location.
Can I claim depreciation on a second-hand investment property?
Yes for the building itself (Division 43 capital works at 2.5% per year over 40 years for residential builds completed after 17 July 1985). No for second-hand plant and equipment in established residential property bought after 9 May 2017 — those Division 40 items can no longer be claimed by subsequent owners. New items you install yourself remain claimable.
General information only. This guide reflects ATO rules current at May 2026 and is not personal tax advice. Confirm your circumstances with a registered tax agent before lodging.