Rental Property Tax Deductions Australia 2026: What You Can (and Can't) Claim
If you own an investment property in Brisbane or anywhere else in Australia, tax time usually comes down to one question: what am I actually allowed to claim? The short answer is that the ATO splits your rental expenses into two very different buckets. Some things, like loan interest, council rates and repairs, come off your taxable income straight away, in the same year you pay them. Others, like the cost of the building itself or a new hot water system, get spread out over years or even decades. Mixing the two up is one of the most common reasons landlords either under-claim (and leave money on the table) or over-claim (and end up with an amended assessment they didn't ask for).
This matters more than usual this year. The 2025–26 income year is the one most self-lodgers are working through right now, with the standard lodgment deadline of 31 October fast approaching if you're not using a registered tax agent. Rental deductions are also one of the areas the ATO has flagged repeatedly as a mismatch hotspot, particularly around interest apportionment and repairs being claimed as if they were improvements (or vice versa). Getting the categories right the first time saves you a headache later.
Below is a practical walk-through of what counts as an immediate deduction, what has to be claimed over several years, how apportionment works if you don't rent the property out full-time, and the record-keeping habits that make all of this defensible if the ATO ever asks. None of this is personal advice — see the disclaimer at the end — but it will get you asking your accountant the right questions.
Contents
What Can You Claim Immediately on a Rental Property?
Before you claim anything, the property has to clear a basic hurdle: it needs to be rented out, or genuinely available for rent, during the period you're claiming for. The ATO is specific about this — a property doesn't qualify just because you've stuck a "for rent" sign in the window while secretly hoping nobody applies. If you've decided not to actually rent it out for a stretch of time, that period doesn't count, even if the property sits vacant.
Once that condition is met, a handful of expenses can be deducted in full, in the same income year you pay them:
Interest charged on the portion of your loan used to buy or improve the rental property
Council rates, water rates and body corporate fees
Repairs and maintenance (more on the tricky distinction below)
Advertising for tenants and real estate agent commissions
Depreciating assets that cost $300 or less — think a $180 smoke alarm or a $95 door lock
These immediate deductions are the ones that reduce your taxable income dollar for dollar, this year, on this tax return. They're also the ones the ATO expects to see backed by an actual invoice or statement, not an estimate from memory.
How Does Interest on Your Investment Loan Actually Work?
Interest is usually the single biggest deduction on a geared rental property, and it's also where things get complicated the moment your loan isn't used for one purpose only. The basic rule is straightforward: interest is deductible to the extent the borrowed money was used to produce your rental income.
Problems start with redraw facilities, offset accounts and loan top-ups. If you've got a $500,000 investment loan and you redraw $60,000 of it to put a deposit on a car or fund a holiday, that $60,000 slice is now a private borrowing sitting inside the same loan account. The ATO's rule for this is apportionment: you work out what share of the total loan relates to the rental property versus private use, then apply that ratio to the interest charged for the period. As a rough illustration, if 88% of a loan balance relates to the rental property and 12% was redrawn for private spending, only 88% of the interest for that period is deductible — you can't claim the lot just because it's all sitting in the one account.
This gets genuinely messy with flexible redraw and line-of-credit facilities where the balance moves around constantly. The ATO points landlords to Taxation Ruling TR 2000/2 for the detailed method, but the practical takeaway is: keep records that let you trace exactly what each drawdown was used for, because "it's all one loan" is not an answer that holds up.
There's also a harder stop worth knowing about. If you refinance an investment loan and use the new funds for a private purpose — paying out personal debt, renovating your own home, whatever it is — that portion of interest stops being deductible from that point on, even though the loan is still secured against the rental property. The security doesn't matter; the use of the funds does.
Repairs vs Improvements: Where Does the ATO Draw the Line?
This is probably the most argued-about distinction in rental property tax, because the two categories are treated completely differently. A repair — something that restores the property to the condition it was already in, or fixes ordinary wear and tear from tenants living in it — is deductible in full, right now. An improvement — anything that makes the property better, more valuable, more desirable, or changes what it fundamentally is — gets treated as a capital expense and claimed gradually over years, not all at once.
The ATO's own examples make the distinction easier to picture. One example involves a landlord who repainted the interior walls of her rental (worn from years of tenants) at the same time as rendering and repainting the exterior to modernise the look of the property. Because she kept an itemised invoice separating the two jobs, she was able to claim the interior repainting straight away as a repair, while the exterior rendering — which changed and improved the property rather than just restoring it — had to be depreciated as capital works instead.
Another example deals with plumbing: replacing a single cracked tile or patching a leaking pipe is a repair. But replacing an entire toilet suite is treated differently, because a toilet is what the ATO calls "a separate item of capital equipment" — it's not a patch job, it's a whole functioning unit being swapped out, so it's depreciated rather than deducted outright.
The practical lesson here isn't really about toilets or paint. It's about invoices. If you're doing repair work and capital improvement work in the same visit from the same tradesperson, ask for the cost broken down as two line items. Without that split, the ATO may treat the whole job as capital, which usually means you get less of a deduction in the year you actually paid for it.
Capital Works and Depreciation: Deductions You Claim Over Decades
Capital works cover the structural side of a rental property — the building itself, extensions, a new fence, a driveway, a retaining wall, a garage, or a substantial renovation. These are deducted at a fixed rate over a long period: generally 2.5% per year over 40 years, or 4% per year over 25 years depending on the type of work and when it was carried out. To qualify at all, the construction has to be finished (you can't claim on a half-built extension) and the building generally needs to have been built after 17 July 1985.
Separate from the building itself, there's depreciation on the plant and equipment inside it — air conditioners, carpets, blinds, dishwashers and the like — each claimed over its own effective life rather than at a flat building rate. This is where a lot of investors get caught out on properties they didn't build themselves. Since 9 May 2017, if you buy an established residential property, you generally can't claim depreciation on the second-hand plant and equipment that came with it — the washing machine or air conditioner the previous owner installed doesn't get a fresh depreciation claim just because you're the new owner. The rule is aimed squarely at the once-common practice of inflating depreciation schedules on older properties. If you install brand new equipment yourself after settlement, that's a different story — you can depreciate what you buy new.
Because these calculations involve effective lives, pooling rules and construction dates that aren’t always obvious from a contract of sale, most investors get a quantity surveyor to prepare a formal depreciation schedule rather than working it out themselves. The fee for that report is itself a deductible expense.
What If You Only Rent Out Part of the Year, or Just a Room?
Full deductions assume the property (or the room) was earning you rent, or genuinely available to, for the whole period. The moment that's not true — you lived in it for three months, you rented out one bedroom and kept the rest for yourself, or you let a relative stay for less than market rent — every expense has to be apportioned rather than claimed in full.
There are two common ways this gets calculated. The first is time-based: you divide the number of days the property was producing income by the total number of days you owned it that year, then apply that fraction to the deductible expenses. A property rented for 219 days out of a 365-day year, for example, only supports a claim on 60% of the annual interest and rates for that period.
The second is area-based, used when only part of the property is rented out — a granny flat, a spare room, a share-house arrangement. Broadly, you take the area exclusively used by the tenant, add half of any genuinely shared common areas, and divide that by the total floor area of the property to get your claimable percentage.
There's a further twist if you're renting to family or friends below market rate. In that situation, your deduction is capped at the actual rent you received — you can't generate a loss by charging your sister $200 a week for a property that would otherwise rent for $500, and then claim expenses as though full market rent came in.
Airbnb and Short-Stay Rentals: Same Rules, Extra Care
If you're renting out a room or a whole property through a platform like Airbnb rather than a standard lease, the underlying deduction rules don't change — interest, rates and repairs still follow the same immediate-versus-capital split described above. What does change is the apportionment workload, because short-stay hosts are far more likely to have periods of personal use mixed in with periods the property earned income, plus higher turnover of consumables and cleaning costs between guests. Residential rental income itself is input-taxed for GST purposes in the vast majority of owner-occupier and standard investment scenarios, which is a separate question from income tax deductibility and worth checking with your accountant if you're scaling up a short-stay operation.
How Long Do You Need to Keep Your Rental Records?
The ATO’s standard rule is five years from the date you lodge the tax return that the records relate to. But rental properties have a longer tail than most other deductions, because of capital gains tax when you eventually sell. Records connected to buying, owning and improving the property — purchase contracts, settlement statements, loan documents, and receipts for any capital works or improvements — need to be kept for at least five years after you sell, not five years after you bought.
In practice, that means keeping:
Title and settlement documents
Loan and mortgage paperwork
Tenancy agreements and property manager statements
Platform payout records if you're using Airbnb or similar
Every invoice and receipt for repairs, insurance and management fees
Your depreciation schedule
If part of the property was ever used privately, whatever you used to work out the apportionment — a floor plan with measurements, or a log of the weeks you stayed there yourself
Common Mistakes That Catch the ATO's Attention
A few patterns come up again and again in rental property claims that get queried:
Claiming the costs of buying or selling the property — stamp duty, conveyancing, agent's selling commission — as an income tax deduction, when these are actually capital costs that adjust your cost base for CGT purposes instead
Treating a full renovation as "repairs" because it happened on one invoice, without asking for an itemised breakdown
Claiming 100% of interest, rates or insurance on a property that was only available for rent part of the year, or where a room was kept for personal use
Claiming depreciation on second-hand appliances that came with an established property purchased after May 2017, which generally isn't allowed for individual investors
None of these mistakes are usually deliberate. They tend to come from treating a rental property like a simple pass-through where "whatever I spent, I claim," rather than recognising that the ATO cares a great deal about timing (this year versus over 25–40 years) and about the difference between a private cost and an income-producing one.
Frequently Asked Questions
Can I claim interest if I redraw my investment loan for personal use?
Only on the portion still used for the rental property. If you redraw part of an investment loan for something private — a car, a holiday, paying off a credit card — that share of the loan is no longer producing your rental income, so the interest on it has to be apportioned out and isn't deductible, even though it's technically the same loan account.
Is painting a rental property a repair or an improvement?
It depends on what the painting is actually doing. Repainting existing surfaces to restore them after normal wear and tear is a repair and deductible immediately. Work that changes the character of the property — such as rendering walls that weren't previously rendered — is treated as an improvement and depreciated over time. If a painter does both jobs in one visit, ask for the invoice split so each part can be claimed correctly.
Can I claim my rental property's furniture and appliances immediately?
Only if each item costs $300 or less. Anything above that threshold is a depreciating asset claimed over its effective life rather than in one go, and if the item came second-hand with an established property you bought after 9 May 2017, it generally can't be depreciated at all.
What happens if I only rent my property for part of the year?
You apportion your deductions based on how much of the year the property was rented out, or genuinely available for rent. The usual method is dividing the number of income-producing days by the total days in the ownership period, then applying that percentage to expenses like interest, rates and insurance.
Do I need a depreciation schedule if I bought an established property?
It's still worth getting one, even with the post-2017 restriction on second-hand plant and equipment. The building's capital works deduction (the structural 2.5% or 4% per year component) generally isn't affected by that restriction, and a quantity surveyor's schedule is the standard way to substantiate that claim accurately.
How long should I keep my rental property records?
Keep expense and deduction records for five years after you lodge the relevant tax return. Keep anything connected to buying, improving or selling the property — contracts, loan documents, capital works invoices — for at least five years after you eventually sell, since those records affect your capital gains calculation down the track.
Where to Go From Here
If you're weighing up whether a job on your rental property counts as a repair or an improvement, whether your loan needs to be apportioned, or whether last year's depreciation schedule is still doing its job, that's exactly the kind of thing worth running past a registered tax agent before you lodge — not after.
Baron Tax & Accounting prepares individual and rental property tax returns for clients across Brisbane and Australia-wide. You can start your online tax return with us, use our tax calculator to estimate your refund, check our fees upfront, or read more about us. If you're setting up a new rental arrangement that involves an ABN or GST registration, see our ABN/GST registration guide.
You can reach us at 758 Underwood Road, Rochedale South QLD 4123, on +61 7 3706 3147 or 1300 087 213, by email at info@baronaccounting.com, Monday to Friday 9:30am–5:00pm.
General Advice Disclaimer
This article provides general information only and does not constitute personal tax or financial advice. It does not take into account your objectives, financial situation or needs. Tax rules change and apply differently to each person’s circumstances. Before acting, please seek advice from a registered tax agent. Baron Tax & Accounting accepts no liability for any loss arising from reliance on this article. Source references: ATO (ato.gov.au) and other Australian government agencies, current as at the date of publication.
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