Tax matters: what rental property expenses are tax deductible?
Owning an investment property comes with various costs, but did you know that many of these expenses can be tax deductible? Understanding what you can and can’t claim is essential for maximising your investment returns and ensuring you stay compliant with Australian tax laws.
In this guide, we’ll break down rental property expenses that are tax deductible, what can’t be claimed, and why accurate record-keeping is crucial for investors.
Are Rental Expenses Tax Deductible?
If you own a rental property, you may be eligible to claim certain expenses as investment property tax deductions. These deductions help offset your taxable income, ultimately reducing the amount of tax you need to pay. However, knowing exactly what’s claimable—and ensuring you have the right documentation—is key to making the most of your investment.
What Rental Property Expenses Are Tax Deductible?
The Australian Taxation Office (ATO) allows property investors to claim a variety of expenses, provided they are directly related to earning rental income. Some of the most common tax deductible items for rental property owners include:
1. Property Management Fees
Are property management fees tax deductible? Yes! If you engage a property manager to oversee your rental, their fees are fully deductible. This includes costs for advertising, tenant screenings, lease agreements, and ongoing management.
2. Body Corporate Fees
For those who own an apartment or townhouse, are body corporate fees tax deductible? In most cases, yes—provided the fees cover maintenance, administration, and sinking fund contributions directly related to the investment property.
3. Interest on Loans
If you have a mortgage on your rental property, the interest portion of your repayments is deductible. However, repayments on the loan principal are not.
4. Repairs and Maintenance
Costs for repairing damage or maintaining the property (such as fixing a leaking tap or repainting) are deductible. However, major renovations or capital improvements may need to be claimed as depreciation over time.
5. Insurance Premiums
Is home insurance tax deductible for a rental property? Yes! Landlord insurance, building insurance, and contents insurance (for furnished rentals) can all be claimed as tax deductions.
6. Council Rates and Utilities
If you, as the landlord, pay council rates or water usage charges, these expenses can be claimed on tax.
7. Depreciation
Depreciation on assets like carpets, air conditioning units, and appliances can be claimed over time. A tax depreciation schedule from a qualified quantity surveyor can help maximise these claims.
What Rental Property Expenses Can’t Be Claimed?
While many expenses are deductible, there are some key exclusions to be aware of:
● Personal use expenses – If you or your family members use the property for any period, you cannot claim deductions for that time.
● Loan principal repayments – Only the interest portion of a mortgage is deductible.
● Initial purchase costs – Stamp duty, conveyancing fees, and the purchase price of the property itself are not immediately deductible.
● Major renovations – Structural improvements are classified as capital expenses and must be depreciated over time instead of claimed outright.
The Importance of Record-Keeping
To successfully claim deductions, you need to keep detailed records of all expenses. The ATO requires proof of expenses, so be sure to:
● Keep invoices and receipts for all repairs, maintenance, and professional services.
● Store loan statements to support interest claims.
● Maintain body corporate statements for any fees paid.
● Work with a tax accountant to ensure compliance and maximise your deductions.
Need Help Managing Your Investment Property?
Understanding rental property expenses that are tax deductible is essential for maximising your returns. But managing an investment property effectively requires time, expertise, and attention to detail.
At McGrath Aspley, we specialise in professional property management to help investors maximise their rental income while staying compliant with tax regulations.
Contact us today to discuss how we can help you manage your investment property.
Disclaimer
All information is general and not intended as a substitute for professional advice.