November 20, 2025

How to Claim Rental Expenses on Your Tax Return in Australia

Owning a rental property in Australia can be a rewarding investment but understanding how to claim tax deductions for rental-related expenses can sometimes be challenging. This guide will walk you through what you can—and can’t—claim, how to categorise your expenses, the concept of positive and negative gearing. Whether you’re a savvy property investor or just starting out, understanding these rules will help you stay compliant with the ATO and ensure you’re not missing out on legitimate deductions.

Rental Expense Categories

Rental expenses generally fall into three main categories:

Can claim a deduction now (in the income year you incur the expense) – for example, interest on loans, council rates, repairs and maintenance and depreciating assets costing $300 or less.
Can claim a deduction over several years – for example, capital works, borrowing expenses and the decline in value of depreciating assets.
Can't claim a deduction – for example, personal expenses, including expenses arising from your personal use of the property, some expenses of a capital nature and the purchase of second-hand (or used) depreciating assets after 9 May 2017.

Sometimes, you may be able to claim some expenses even before your property is available for rent (like interest on loans), provided your genuine intention is to rent out the property. However, if your intention changes, those expenses can’t be claimed. In addition, if your land is considered ‘vacant’ under ATO rules, deductions for holding costs are generally not allowed until the property is available for rent.

Claiming the Right Amount

Getting your deduction right means only claiming expenses that relate to your income-producing activities. You may need to apportion your expenses if:

The property is only available for rent for part of the year
The property is considered vacant land for part of the year
You use the property for private purposes at any point
Only part of the property is used to earn rent (e.g., renting out a room)
The property is rented out below market rates (non-commercial arrangement)
You use part of your investment loan for personal reasons

If you co-own the property, income and expenses must be divided according to your legal interest (the ownership percentage on the title). For those renting out part of a property (for example, a granny flat or a room), expenses should be calculated based on the floor-area ratio used for rental purposes.

Some expenses directly related to renting, such as advertising for tenants or real estate agent commissions, are fully deductible and don’t need to be apportioned.

Positive vs Negative Gearing

Understanding whether your property is positively or negatively geared is important for tax planning:

Positive Gearing: This means your rental income exceeds your deductible expenses, so you make a profit. You’ll pay tax on this net rental income.
Negative Gearing: This occurs when your deductible expenses are greater than your rental income. The loss can be deducted against your other income (such as wages or business profits), and if your total income isn’t enough to absorb the loss, you can carry the loss forward to future years.

Expenses You Can’t Claim

Not all property-related outgoings are tax-deductible. You can’t claim:

Expenses paid by tenants (e.g., water or electricity)
Acquisition and disposal costs, like the purchase price, conveyancing, or advertising during sale (these form part of your cost base for capital gains tax purposes)
GST credits on purchases related to residential rentals (GST doesn’t apply, so claim the full amount paid, GST-inclusive if applicable)
Costs of holding vacant land in most cases

Conclusion

Claiming rental property expenses correctly is vital to maximising your return and staying on the right side of the ATO. By understanding which expenses are deductible, which need to be apportioned, and which are non-deductible, you can approach tax time with confidence. When in doubt, consider consulting a registered tax agent or checking the ATO website for up-to-date guidance specific to your situation.