What can I claim as deductions on an investment property in Australia?

If you own a rental investment property in Australia, you can claim a range of deductions against your rental income. These fall into immediate deductions and deductions spread over several years.

Immediate deductions (claimed in full in the year incurred):

• Loan interest on the mortgage used to purchase the property (the largest deduction for most investors)
• Advertising for tenants
• Body corporate fees and strata levies
• Council rates and water charges
• Insurance premiums (landlord, building, contents)
• Land tax
• Property management and agent fees
• Repairs and maintenance (fixing something broken or restoring it to its original condition)
• Pest control and gardening for common areas

Deductions spread over time:

• Capital works deduction (Division 43): You can claim 2.5% per year of the construction cost for buildings built after 15 September 1987. For example, if construction cost was A$300,000, the annual deduction is A$7,500.
• Depreciation of plant and equipment (Division 40): Items such as carpets, blinds, hot water systems, air conditioners, and appliances are depreciated over their effective life. Note that since 1 July 2017, the depreciation of previously used plant and equipment in residential properties can only be claimed by the original purchaser of the item.
• Borrowing costs (such as loan establishment fees) are deducted over 5 years or the life of the loan, whichever is shorter

Key rules:

• You can only claim deductions for the periods the property is rented or genuinely available for rent
• Improvements (such as renovating a kitchen) are capital expenses and must be depreciated, not claimed immediately
• Obtain a quantity surveyor's depreciation schedule to maximise your capital works and depreciation claims
• Keep all records for 5 years after you lodge the relevant tax return