Investment Property Tax Deductions in Australia: What Investors Can Actually Claim
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- 7 min read
Most Australian property investors know they can claim interest and council rates. Far fewer can name the twenty-odd other deductions sitting in their annual statements, and fewer still claim the largest one available to them because it never appears on a bank statement at all.
Investment property tax deductions in Australia fall into two groups: cash deductions and non-cash deductions. Cash deductions are expenses you actually pay during the year loan interest, council rates, water rates, strata levies, insurance, property management fees, repairs, advertising and travel-adjacent professional costs. Non-cash deductions are the depreciation of the building and its assets under Division 43 and Division 40, claimed from a quantity surveyor's schedule without any money leaving your account. Depreciation is generally the single largest deduction available to an investor, and it is also the most commonly missed.
This guide sets out what is generally claimable, what is not, when each category is claimed, and where investors routinely leave money behind. It is general information only your circumstances, ownership structure and the property's use will change the answer, so confirm the treatment with your registered tax agent.
Investment property tax deductions: Cash deductions vs non-cash deductions
Category | Examples | How it is claimed |
|---|---|---|
Immediate cash deductions | Interest, rates, strata levies, insurance, agent fees, repairs, pest control | Claimed in full in the year the expense is incurred |
Borrowing expenses | Loan establishment fees, lender's mortgage insurance, mortgage stamp duty | Generally spread over five years or the loan term, whichever is shorter |
Capital works (Division 43) | The building structure, driveways, retaining walls, fixed fit-out | Generally 2.5% of construction cost per year over 40 years |
Plant and equipment (Division 40) | Carpet, blinds, appliances, air conditioning, hot water systems | Declining value over each asset's effective life |
Capital costs (not deductible) | Purchase stamp duty, legal fees on acquisition, agent's selling commission | Generally added to the CGT cost base instead |
The cash deductions most investors already claim
These are the expenses that flow through your bank account and appear on your property manager's annual statement. Where the property is genuinely available for rent, they are generally deductible in the year incurred:
Loan interest on the portion of borrowings used to acquire or improve the income-producing property
Council and water rates, and land tax where it applies in your state
Strata levies administrative fund contributions are generally deductible; special levies for capital improvements usually are not
Landlord insurance, building insurance and public liability cover
Property management fees, letting fees, lease preparation and statement charges
Advertising for tenants
Repairs and maintenance that restore the property to its previous condition
Pest control, gardening, cleaning and rubbish removal between tenancies
Accounting and tax agent fees relating to the rental property, and the cost of a depreciation schedule itself
Bank charges, body corporate administration and other holding costs directly connected to the rental activity
The repair versus improvement line is where audits happen. Replacing three broken roof tiles is generally a repair, deductible immediately. Replacing the entire roof is generally a capital improvement, claimed over time through capital works. Replacing a worn carpet with new carpet is generally a plant and equipment asset, not a repair. And work carried out to fix defects that existed at the date you purchased the property is generally treated as an initial repair capital, not immediately deductible even if you did it in your first month of ownership.
The non-cash deduction most investors miss
Depreciation is the decline in value of the building and its assets over time. You do not spend anything to claim it, which is precisely why it is overlooked. It splits into two divisions:
Division 43 - capital works
The structural element: the building itself, plus structural improvements such as driveways, retaining walls, fencing, paving, in-ground pools and fixed joinery. Capital works are generally claimed at 2.5% of the original construction cost per year over 40 years, provided construction commenced after the relevant qualifying date. On a house that cost $400,000 to build, that is roughly $10,000 a year in deductions with no cash outlay. Our guide to the capital works deduction covers the qualifying dates and what counts as structure.
Division 40 - plant and equipment
The removable, mechanical and soft assets: carpet, blinds, ovens, cooktops, dishwashers, air conditioning, hot water systems, smoke alarms, garage door motors, and an investor's share of common property assets in a strata building. Each asset depreciates over its own effective life, so the early years are front-loaded.
One rule changes everything here. For residential properties acquired after 9 May 2017, deductions for previously used plant and equipment are generally not available to the new owner. If you bought an established house in 2022, you can generally still claim Division 43 capital works on the structure, but not Division 40 on the previous owner's carpet and appliances unless you bought new, bought off the plan, or installed the assets yourself. This single provision is the biggest practical difference between new and established investment properties, and it is explained fully in our comparison of Division 40 and Division 43.
Because construction costs are rarely known to a purchaser, the estimate generally needs to be prepared by an appropriately qualified professional. In practice that means a quantity surveyor, who inspects the property and produces a tax depreciation schedule covering the full 40-year period. It is ordered once, not annually, and the fee is generally deductible.
What you generally cannot claim
Stamp duty on the purchase and conveyancing fees on acquisition these generally form part of the CGT cost base
Agent's commission and marketing costs when selling also generally cost base items
Expenses relating to any period the property was used privately or was not genuinely available for rent
Travel costs to inspect or maintain a residential rental property, which are generally not deductible for individual investors
The portion of any expense relating to a non-income-producing part of the property
Loan principal repayments only the interest component is generally deductible
Records for the non-deductible capital items still matter enormously. They reduce your eventual capital gain, which is why acquisition documents should be kept for the life of the ownership. Where the cost base needs to be established for a past date, a capital gains tax valuation may be required.
A worked example: a Melbourne apartment
An investor buys a two-year-old apartment in Footscray for $620,000, borrowing $500,000. Gross rent is $520 per week, or $27,040 a year. The figures below are illustrative only.
Item | Amount |
|---|---|
Rental income | $27,040 |
Loan interest | -$29,500 |
Council and water rates | -$2,100 |
Strata levies | -$3,800 |
Property management (7%) | -$1,893 |
Insurance and maintenance | -$1,400 |
Cash position before depreciation | -$11,653 |
Depreciation (Div 43 + Div 40, year 3) | -$9,200 |
Taxable loss | -$20,853 |
The depreciation line adds $9,200 of deductions without a dollar leaving the investor's account. At a 37% marginal rate, that single line is worth roughly $3,400 in reduced tax several times what the schedule cost to produce. An investor who never orders a schedule simply forgoes it.
Where investors leave money behind
Never ordering a depreciation schedule at all, usually on the assumption that an older property has nothing left to claim. Capital works on a 1995 build still has around a decade of claims remaining.
Ignoring the previous owner's renovations. A kitchen or bathroom the vendor installed generally still carries capital works value to you, even though you did not pay for the work directly.
Missing common property in strata buildings. Lifts, intercoms, pumps, gym equipment and shared air conditioning are apportioned to each lot, and unit owners frequently overlook them.
Forgetting to scrap removed assets. When you renovate, the written-down value of assets you remove may be claimable in the year of removal, but only if their value was documented before demolition.
Leaving a claim in the past. Where a schedule was never obtained, prior year returns can often be amended within the ATO's amendment periods. Our guide to backdated depreciation claims sets out the limits.
Waiting twelve months for the refund. A PAYG withholding variation can adjust your take-home pay through the year instead, as explained in our article on PAYG withholding variations for investors.
Records the ATO expects you to keep
Keep the annual statement from your property manager, all rates and levy notices, loan statements showing interest, invoices for every repair and improvement with dates, your depreciation schedule, and the full acquisition file including the contract and settlement statement. Photographs before and after any renovation are worth more than most investors realise they are the evidence that supports the repair-versus-improvement position and any scrapping claim.
Frequently asked questions
What can I claim on my investment property in Australia?
Generally: loan interest, council and water rates, land tax, strata levies, landlord insurance, property management fees, advertising for tenants, repairs and maintenance, pest control and cleaning, accounting fees relating to the property, and depreciation of the building and its assets under Division 43 and Division 40.
Is depreciation worth claiming on an older property?
Usually yes. Capital works deductions generally run for 40 years from construction, so a property built in the 1990s can still have meaningful claims remaining, and any subsequent renovation including work done by a previous owner, starts its own 40-year period.
Can I claim depreciation on a second-hand residential property?
Generally you can claim Division 43 capital works on the structure, but for residential properties acquired after 9 May 2017 you generally cannot claim Division 40 on previously used plant and equipment. Assets you buy and install yourself are treated differently.
Is the cost of a depreciation schedule tax deductible?
The fee for a tax depreciation schedule is generally deductible as a cost of managing tax affairs. Confirm the treatment for your circumstances with your tax agent.
Do I need a quantity surveyor, or can my accountant estimate it?
Where actual construction costs are unknown, the estimate generally needs to come from an appropriately qualified professional, and the ATO identifies quantity surveyors as suitably qualified for construction cost estimation. Accountants apply the schedule in your return; quantity surveyors prepare it. See what a quantity surveyor does.
How often do I need a new depreciation schedule?
Generally once per property. The schedule covers the full 40-year period. You would only need it updated after a substantial renovation or a change in the property's use.
Does claiming depreciation increase my capital gains tax later?
Capital works deductions claimed generally reduce the property's cost base, which can increase the assessable gain on sale. Even so, the deduction is usually claimed because the benefit is received earlier and any CGT discount may apply later. This is a question for your tax agent.
Can I claim expenses while the property is vacant?
Generally yes, provided the property is genuinely available for rent and actively marketed at a realistic rent. Periods of private use or where the property is withdrawn from the rental market are treated differently.
Get the deduction that is easiest to miss
A tax depreciation schedule is the one deduction that requires a professional to unlock and then keeps paying for four decades. Propti arranges ATO-compliant depreciation reports and quantity surveyor reports for residential and commercial investors across Sydney, Melbourne, Brisbane, Perth, Adelaide and major regional centres, with inspections coordinated directly with your tenant or property manager.
Book in a report and we will confirm what your property is likely to yield before you commit. For more on depreciation, valuations and investor tax positions, browse our property insights.
