Property Investor Tax Deduction Checklist

The most common rental deductions are the running costs of holding a property that is genuinely available for rent. These are generally claimed in the year you incur them, rather than spread over time, because they relate to earning rental income now rather than to the structure or the assets inside it. The list below covers the costs that most investors meet each year.

• Loan interest on the portion borrowed to buy, improve or maintain the property
• Council rates, water rates you are liable for, and land tax
• Building insurance and landlord insurance premiums
• Body corporate or strata administration fees and charges
• Property management commission, letting fees and lease preparation costs
• Advertising for tenants and the cost of arms-length tenancy checks
• Ordinary repairs and maintenance for wear and tear during the rental period
• Cleaning, gardening, pest control and other servicing while the property is let

Each of these is only deductible to the extent the property is producing, or is available to produce, assessable rental income. Where a property is used privately for part of the year, or is rented to family below market rent, the claim is generally apportioned. You can see how we set rental claims out in detail on our rental property tax page, and how the broader engagement runs on our property investor accounting page.

This is where investors most often get the treatment wrong, because the same dollar can be either immediately deductible or a slow capital-works claim depending on what the work actually did. The starting point is whether the work restored the property or improved it.

• Repair — restores the original condition without bettering it; generally deductible now (for example, fixing a tap or patching a fence).
• Initial repair — fixes a defect that existed at purchase; generally capital, not an immediate deduction, even if it looks like maintenance.
• Improvement — makes the property better, changes its function or uses materially different materials; generally capital, claimed over time.
• Capital works — structural construction such as new walls, a re-roof or an extension; claimed under Division 43 at a set rate over many years.

The practical test is timing and degree. A repair that addresses wear and tear arising while the property earned rent is generally immediately deductible. Work that betters the property, or that fixes a problem present when you bought it, is generally capital. Where construction is involved, the cost typically becomes a Division 43 capital works deduction spread across the relevant period rather than a single-year claim. Because the boundary is genuinely fine, keep before-and-after notes and invoices that describe exactly what was done.

Separate from the building structure are the removable and mechanical assets inside the property — the items that wear out faster than the bricks and mortar around them. These are dealt with under the Division 40 depreciation rules over each asset’s effective life, generally using the diminishing value or prime cost method.

• Carpets, vinyl, blinds and curtains
• Ovens, cooktops, rangehoods and dishwashers
• Air conditioners, hot water systems and ceiling fans
• Smoke alarms, garage door motors and similar mechanical fittings

An important limit applies to second-hand assets. For most residential properties acquired since the 2017 changes, depreciation is generally not available on previously used plant and equipment that was already in the property when you bought it. Depreciation on assets you buy and install yourself, and on assets in new properties, may still be available depending on your circumstances. Because valuing and classifying these assets is technical, a depreciation schedule prepared by a qualified quantity surveyor is the usual route, and it works hand in hand with the capital works claim on the building.

Borrowing costs are distinct from interest. They are the expenses of setting up the loan itself, and they are generally spread rather than claimed all at once. Interest, by contrast, is an immediate deduction to the extent the borrowed money was used for the rental property.

• Loan establishment and application fees charged by the lender
• Lenders mortgage insurance where it is a cost of borrowing
• Title search and registration fees charged in connection with the loan
• Mortgage broker fees that form part of the borrowing cost

Where these total more than $100, they are generally deducted over the lesser of five years or the loan term; where they total $100 or less, they may generally be claimed in full in the first year. If the loan is repaid or refinanced early, any undeducted balance may generally be claimed at that point. Apportionment matters throughout: if a loan funds both the investment property and a private purpose, only the investment portion of the interest and costs is deductible, and the split should follow the actual use of the funds. We explain how borrowing and tax interact for investors on our property investor strategy page, and how leverage shapes returns in our guide to how negative gearing works.

A surprising amount of rental tax trouble comes from claiming the wrong thing rather than missing a deduction. The items below are the ones that most often need correcting, and they are generally not deductible against rental income in the year claimed.

• The cost of the property itself, stamp duty on purchase and conveyancing — these generally form part of the capital gains tax cost base, not an annual deduction.
• Repairs that are really improvements, claimed in full in one year when they should be spread.
• Initial repairs to fix problems present at purchase, claimed as if they were ongoing maintenance.
• Travel to inspect or maintain a residential rental property, which is generally not deductible for most investors under the current rules.
• Interest on borrowings used for a private purpose, claimed because the loan happens to be secured against the rental property.
• Expenses for periods the property was not available for rent, claimed without apportioning out the private use.

None of these mean the cost is wasted — many simply belong in a different part of the tax picture, such as the capital gains tax cost base, rather than the annual rental schedule. The mistake is putting the right cost in the wrong place, which is exactly what a careful review is designed to catch.

Deductions stand or fall on substantiation, so the discipline that matters most is keeping clear records as you go. Hold rental statements, loan statements, rates and land tax notices, insurance schedules, body corporate notices, and an invoice or receipt for every repair, improvement and item of plant. Keep the contract and settlement papers from purchase and any depreciation schedule, because both feed the annual claim and the eventual capital gains tax calculation on sale.

As a general rule, retain records for at least five years from when you lodge, and longer where a future capital gains tax event is likely. Where the property was used privately or sat genuinely unavailable for part of the year, keep enough detail to apportion the claim fairly rather than guessing after the fact. Good records also make the difference between a clean review and a stressful one if the position is ever queried.

If you would like a second set of eyes on a rental schedule — to check the repairs-versus-capital calls, confirm the depreciation and capital works split, and make sure nothing is sitting in the wrong place — that is exactly the kind of review we run. The next step is a short, no-obligation chat: get in touch and we will talk through your property and what you can sensibly claim.

This guide is general information only and does not take into account your objectives, financial situation or needs. It is not personal tax advice and does not promise any particular tax outcome; whether a deduction is available depends on your circumstances, how the property is used and the records you can produce. Personal advice scoped to your situation is available through an engagement with Eternity Group Accountants.