One of the biggest financial advantages of owning an investment property in Australia is the range of tax deductions available to landlords. Used correctly, these deductions reduce your taxable income, improve your cash flow, and change the real cost of holding the property significantly.
This is the complete list of what you can claim — and what you can’t.
The Golden Rule: Deductions Must Be for Income-Producing Purposes
Before we get into specifics: a deduction is only claimable if the expense was incurred in the course of earning rental income. If your property is vacant because you’re using it yourself, or if you’re claiming costs for a period the property wasn’t available to rent, the ATO will disallow those deductions. Keep good records and be honest about availability.
Loan Interest
The interest portion of your investment property loan repayments is fully deductible. This is typically the largest single deduction for most investors — on a $600,000 loan at 6.5%, that’s $39,000 per year in deductible interest.
Important nuances:
- Only the interest is deductible, not the principal repayments
- If you redraw funds from your investment loan and use them for private purposes (e.g. a holiday, personal expenses), the interest on those redrawn funds is no longer deductible
- Interest on a loan used to buy a property that was initially your home but is now rented out is generally deductible from the date it became available for rent
- If you have an offset account against your investment loan, the interest saved by the offset is also reduced — this is intentional and correct
Depreciation
Depreciation is a non-cash deduction — you don’t spend money to claim it, but the ATO allows you to deduct the declining value of the building structure and the assets inside it over time. For a newer property, depreciation can be worth $5,000–$20,000 per year in paper deductions.
There are two types:
Capital works (Division 43). The building structure itself depreciates at 2.5% per year over 40 years, starting from the date of construction. Only applicable to properties built after 18 July 1985. A property built in 2020 with a construction cost of $350,000 generates $8,750 per year in capital works deductions.
Plant and equipment (Division 40). Depreciable assets inside the property — appliances, carpets, blinds, hot water systems, air conditioning units, etc. — depreciate at varying rates based on their effective life. The rate depends on the asset; a dishwasher might depreciate over 8 years, air conditioning over 10.
From 1 July 2017, second-hand residential investment properties bought by an individual can no longer claim plant and equipment depreciation on assets that existed at the time of purchase — only new assets you install qualify. Brand new properties and commercial properties are not affected by this restriction.
Get a depreciation schedule prepared by a quantity surveyor. The cost is $500–$800, is itself deductible, and the schedule is valid for the life of the property.
Property Management Fees
If you use a property manager, their fees are fully deductible. This typically includes:
- Ongoing management fee (7–10% of gross rent in most states)
- Leasing/letting fee (typically 1–2 weeks rent when a new tenant is found)
- Lease renewal fee (usually a smaller flat fee)
- Inspection fees
- Maintenance coordination fees
Repairs and Maintenance
Repairs to existing damage — a broken tap, a hole in the wall, a burst pipe — are immediately deductible in the year the expense is incurred.
The distinction that matters: repairs vs improvements.
- Repair: Restoring something to its original condition. Deductible immediately.
- Improvement: Enhancing or upgrading beyond original condition. This is a capital expense and must be depreciated over time, not claimed as an immediate deduction.
Replacing a fence like-for-like is a repair. Replacing a timber fence with a Colorbond fence is an improvement. The ATO guidance on this distinction matters — get your accountant’s input if you’re unsure.
Note: if you carry out repairs or maintenance immediately after purchasing a property (before it’s available to rent), these may be considered initial repairs and are treated as capital rather than deductible maintenance.
Insurance
All insurance premiums directly related to your investment property are deductible:
- Landlord insurance (covers loss of rent, tenant damage, public liability)
- Building insurance
- Contents insurance (if you provide furnished accommodation)
Council Rates, Water Rates, and Land Tax
All deductible. Council rates and water rates are straightforward. Land tax, which varies by state and threshold, is also deductible as an investment property expense in the year it’s paid.
If your property is only partially available for rent during the year (e.g. you use it for personal use for part of the year), you must apportion these deductions for the rental period only.
Strata Levies
For units and apartments, ordinary (administrative) strata levies are deductible. Special levies (for major capital works) are treated differently — they may need to be depreciated rather than immediately deducted. Ask your accountant about specific special levy treatments.
Advertising for Tenants
Advertising costs to find tenants — whether via realestate.com.au, Domain, a letting agent, or elsewhere — are fully deductible.
Accounting and Tax Agent Fees
The cost of your accountant preparing your tax return, including the investment property schedule, is deductible. Fees for tax advice specifically related to your investment property are also deductible.
Gardening and Cleaning
If you (or your property manager) arrange gardening, lawn mowing, pool maintenance, or cleaning between tenancies, these are deductible as part of maintaining the property for rental.
Pest Control
Pest inspections and treatments are deductible as maintenance.
Legal Expenses (Some)
Legal expenses are deductible if they relate to the management of the tenancy — for example, costs to recover unpaid rent or to take action against a tenant. Legal fees for purchasing or selling the property are not deductible (they’re added to the cost base for CGT purposes instead).
Borrowing Costs (Loan Establishment Fees)
If you paid loan establishment fees, mortgage registration fees, or other borrowing costs when taking out your investment loan, these are deductible — but spread over five years or the loan term (whichever is shorter), not all in one year. Typical items include:
- Loan application and establishment fees
- Mortgage registration fees
- Title search fees
- Mortgage broker fees (if charged to you)
- Lenders Mortgage Insurance (LMI) premium
What You Cannot Deduct
Not everything property-related is deductible. Common non-deductible items:
- Purchase costs: Stamp duty, conveyancing, building inspections — these add to your cost base for CGT, but aren’t deductible
- Capital improvements: Not immediately deductible — depreciated over time
- Travel to inspect residential investment properties: No longer deductible since 1 July 2017 for residential properties
- Principal loan repayments: The principal portion of your repayments is never deductible — only the interest
- Expenses for periods the property wasn’t available to rent: If you use the property yourself for two weeks a year, you must exclude those costs
Getting the Most from Your Deductions
A few practical points:
- Engage a property-savvy accountant. Not all accountants are equally familiar with investment property deductions. An accountant who handles property investors regularly will find deductions a generalist might miss.
- Keep every receipt. Repairs, insurance, strata notices, rates notices — keep everything. Digital records are fine; use a dedicated folder or app.
- Get a depreciation schedule. If you bought a property built after 1985 and don’t have one, get one done. The cost is minimal relative to the deductions it unlocks.
- Be accurate. The ATO data-matches rental property income and is familiar with common over-claiming areas — interest, repairs vs improvements, and apportionment. Accuracy pays off.
The tax system for property investors is genuinely generous — especially for those with higher taxable incomes. Using deductions correctly, particularly the non-cash depreciation benefit, can turn the apparent cost of holding an investment property into a much more manageable real cash position.
One Property at a time
Brick by Brick 🧱
General Advice Warning: This article is general in nature and does not constitute personal financial advice. Please consult a licensed financial adviser before making investment decisions.
