What Expenses Can I Claim as an Immediate Tax Deduction on My Investment Property?
Rental property expenses split into three tax categories — only one is claimed straight away. Here's the difference, as at July 2026.
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Rental property expenses fall into three tax categories, and only one of them is claimed straight away. If an expense is incurred in earning the rent and doesn’t add to or improve the property, it’s usually deductible in full in the same income year you pay it. The other two categories — capital works and the decline in value of depreciating assets — are spread over years or decades instead of claimed upfront. Getting the category wrong changes not just how much you can claim, but when.
Tax outcomes depend on your circumstances — speak with a registered tax agent before acting.
The three categories of rental property expenses
The ATO’s own framing of a negatively geared property already points to the general idea: a landlord “may be able to claim a deduction for the full amount of rental expenses” against rental and other income. But “rental expenses” isn’t one bucket — it splits three ways.
| Category | What it covers | When you claim it |
|---|---|---|
| Immediate deductions | Day-to-day running costs of earning the rent | In full, in the income year you incur them |
| Capital works (Division 43) | Construction-type costs — the building itself, structural improvements | Spread at 2.5% a year over 40 years, for capital works begun on or after 16 September 1987 |
| Decline in value of depreciating assets (Division 40) | Separately identifiable plant and equipment with a limited effective life — ovens, carpets, air-conditioners, furniture | Spread over the asset’s effective life |
The two capital categories are mutually exclusive for the same spend — an expense is either capital works or a depreciating asset, never both.
Which expenses are typically immediate deductions?
The general test is whether the cost was incurred in earning the rental income during the period you held the property out for rent — not in adding something new or bringing the property beyond its original condition. Costs commonly falling into this category include:
- Interest on the loan used to buy or improve the property
- Council rates and water rates
- Land tax (state-based — thresholds and scales differ by jurisdiction)
- Building and landlord insurance
- Property management or letting agent fees
- Advertising for tenants
- Cleaning, gardening and pest control between tenancies
- Bank and loan account fees
- Fees for having a registered tax agent or bookkeeper manage the property’s records
Property management fees are a useful example of how these costs vary: REIQ (the Real Estate Institute of Queensland — an industry body, not a government source) publishes a state-by-state guide putting ongoing management fees at roughly 5–15% of weekly rent — around 5% at the low end in several states’ metro markets, rising to around 15% in South Australia, with Western Australia and the ACT both quoting open-ended regional figures above 11% and 8% respectively — on top of a separate letting fee, with the exact figure varying by state and by metro versus regional location.
This list isn’t exhaustive, and it’s a guide to the category, not a personal tax opinion. The ATO’s own rental properties guide is the authoritative source for the complete list and for how each cost applies to your situation.
Repairs vs improvements — the line that catches people out
Not every job on a rental property is an immediate deduction, even when it looks like simple maintenance. The distinction the ATO draws is between a repair — putting right something that was worn or damaged while you were renting the property out — and an improvement — adding something new, replacing an entire structure, or upgrading the property beyond the condition it was in when you started earning rent from it. A repair is generally immediate; an improvement is generally capital, and falls into Division 43 or Division 40 instead, depending on what it is.
The ATO’s own “Repairs and maintenance” guidance draws the line in almost identical terms: a repair “restor[es] a defective, damaged or deteriorated item to working condition” — generally “a replacement or renewal of a worn out or broken part” — while maintenance is about “keeping the property in a tenantable condition.” Expenses of a capital nature, which the ATO says are not deductible as repairs or maintenance, include “replacement of an entire structure or unit of property,” “improvements, renovations, extensions and alterations,” and — the initial-repairs trap — “initial repairs — for example, in remedying defects, damage or deterioration that existed at the date you acquired the property.”
A related trap is the initial repair — fixing damage or wear that already existed when you acquired the property, before it was earning you rent. Even though it looks like an ordinary repair, work done to bring a newly acquired property up to a rentable standard is treated differently from repairs carried out during an existing tenancy. Because this line depends on the specific facts of when the damage occurred and what the work involved, it’s worth checking with a registered tax agent before claiming a large repair bill in full.
Why the category matters for your tax return
Tax outcomes depend on your circumstances — speak with a registered tax agent before acting.
Under current law (the 2026-27 income year), if your immediately deductible expenses plus interest exceed your rental income, the result is a net rental loss — what’s commonly called negative gearing. The ATO’s current guidance is that you may claim that loss in full against your other income — such as salary or business income — in the same year, and there’s no general dollar cap on the amount. If your other income isn’t enough to absorb it, the unused loss carries forward to a future year. Capital works and depreciation deductions add to that same calculation each year, but only the year’s instalment (the 2.5%, or the year’s decline in value) counts — not the full cost of the work or asset up front.
This current-law treatment is set to change. From the 2027-28 income year, an enacted law change (royal assent 26 June 2026) quarantines residential rental deductions that exceed residential rental income — the excess can no longer offset your salary or other income. Instead it can only be used against residential capital gains or carried forward against future residential rental income. Interests acquired before 7:30pm AEST on 12 May 2026 are grandfathered under the current treatment, and widely held unit trusts and complying superannuation funds sit outside the new quarantine.
Both of these regimes — the one that applies now and the one that starts in 2027-28 — are separate from the unrelated 1 July 2027 capital gains tax changes; the two shouldn’t be read as the same reform. For more on how a net rental loss position compares with a cash flow positive one, see our guide to cash flow positive vs negatively geared property.
The second-hand asset trap for established properties
If you buy an established rental property that already comes with fittings like an oven, carpet or air-conditioner, you might expect to depreciate those under Division 40. Since 2018, a further restriction (introduced by legislation with an application date of 7:30pm AEST on 9 May 2017) reduces — in practice, often to nil for an ordinary passive investor — the Division 40 deduction for a depreciating asset in residential rental premises where you didn’t hold the asset when it was first used or installed, or the asset was previously used privately. This restriction doesn’t affect Division 43 capital works deductions on the building structure itself, and it doesn’t apply to certain excluded entities (a corporate tax entity, most super funds other than an SMSF, a managed investment trust, or a public unit trust) or to qualifying new-build supplies — but a self-managed super fund is not among the excepted entities, so an SMSF-owned rental property is squarely caught by the restriction.
Does it matter how you hold the property?
Superannuation rules are complex and penalties for breaches are significant — seek advice from a licensed financial adviser before making SMSF decisions.
The three deduction categories above apply whichever way you hold an investment property — individually, through a company, through a discretionary or family trust, or through a self-managed super fund (SMSF) — but how the resulting profit or loss is taxed differs by structure. An individual is assessed at their own marginal rate; a company is taxed at the company level and doesn’t get the general 50% CGT discount; a trust generally passes net income through to beneficiaries in proportion to their entitlement; and an SMSF is taxed at a concessional 15% rate but carries extra constraints — the sole purpose test, in-house asset limits, and related-party restrictions — that don’t apply to the other structures. No structure is right for every investor, and choosing between them is a decision for a registered tax agent or licensed financial adviser, not a general guide.
Does this apply if I invest through a fractional platform?
Not in the same way. If you hold a fractional interest — a Brix, in MyBrix’s case — you don’t hold legal title to the underlying property, so you don’t personally incur or claim expenses like repairs, council rates or depreciation the way a direct owner does. Rental Management Fees are deducted before Net Rental Proceeds are distributed monthly to Brix holders, in proportion to holdings at the time of distribution. The tax character of what you receive — whether it’s treated as income, and exactly how — depends on the structure of the specific listing, and MyBrix’s own product disclosure statement directs investors to get independent tax advice from a registered tax agent for that reason.
Where to check the full list
The ATO’s rental properties guide is the primary, authoritative source for the complete list of what’s immediately deductible, what’s a capital works deduction, and what’s a depreciating asset — and it’s updated each year. Because the repair/improvement line and the current-vs-2027-28 negative gearing treatment both turn on the specific facts of your situation, run any significant claim past a registered tax agent before you lodge.
For the bigger picture of how rental income, costs and risk fit together when you’re weighing up an investment property, see our guide to property investment in Australia.
