What you can and can’t claim on rental properties this tax time

Tax time is fast approaching, and the Australian Taxation Office (ATO) is again urging rental property owners to be extra careful in preparing their tax returns this year.

Rental income and deductions remain one of the ATO’s key compliance focus areas. The ATO’s Random Enquiry Program has previously found that nine out of ten tax returns reporting rental income contained at least one error. As a result, property owners are encouraged to carefully review their records, and registered tax agents are advised to ask more detailed questions of their clients.

Our tax specialists have prepared the following guide to help rental property owners stay compliant and avoid common mistakes for the 2025-26 financial year.

1: Declare all rental property income

The ATO collects rental income data from a range of sources, making it easier to identify undeclared rental earnings. When lodging your tax return, ensure you include all rental-related income, including:

  • Short-term rental arrangements (e.g., Airbnb, Stayz)
  • Renting out part of your home
  • Insurance payouts for lost rental income
  • Rental bond money retained
New in 2025 (Victoria): Don’t forget about the Victorian Short-Stay Levy, a $5-per-night charge introduced on short-term stays from January 1, 2025. While the levy itself is not an income tax deduction, it does affect cash flow and record‑keeping and should be factored into your reporting. Read more about this here.

2. Claiming the right expenses at the right time

Not all rental expenses are treated the same for tax purposes. Some costs can be claimed straight away, and others over several years. Let’s break this down for you here:

What expenses can you claim straight away:

  • rental management and body corporate fees
  • council rates
  • cleaning
  • repairs and maintenance (fire alarm checks, service calls, lawn mowing and gardening)
  • interest on rental property loans
  • insurance premiums
  • painting after a tenant moves out (where it restores, not improves)

What expenses are claimed over several years:

  • capital works or improvements (renovations, extensions, new kitchens, bathrooms, etc)
  • depreciating assets (installation of a new appliance such as a refrigerator, air conditioner, installing a new spa)
  • replacement of an entire structure or unit of property (such as a complete fence or building, a stove, replacing kitchen cupboards)

If you have recently renovated an investment property or acquired one that was renovated by the previous owner, it may be worth considering a quantity surveyor’s depreciation report to help maximise eligible deductions.

What expenses can’t be claimed:

  • Refinancing or redrawing on a rental property loan for private expenses, such as holidays or a new car means that the amount of interest relating to the loan for the private expense cannot be claimed as a deduction.
  • Expenses incurred whilst family or friends stayed at the property. Say for example you arranged for a cleaner to clean the property after you or a family member stayed there over the school holidays.
  • Acquisition and disposal costs of the property
  • Expenses not incurred by you, such as water or electricity usage charges borne by your tenants
  • The cost of certain second-hand depreciating assets.
  • Travel expenses to inspect a residential rental property. (For more information on this, please read,  ‘The common misconceptions regarding rental properties – what you can and can’t claim?’.

3. Holiday Rental Properties

If you rent out your holiday home, the ATO applies strict apportionment rules. You can only claim deductions for the portion of expenses related to income-producing use.

For example:

  • If you rent out the property for six months and use it personally for the other six months, you can only claim 50% of eligible expenses.
  • If you block out peak holiday periods for personal use and only rent it out occasionally, your deductions must be adjusted accordingly.
  • With increasing scrutiny on short-term rental deductions, accurate record-keeping is crucial to avoid ATO scrutiny.

For more information, we suggest you read our article ‘The common misconceptions regarding rental properties – what you can and can’t claim?’.

4. Keeping accurate records is key

Good record-keeping ensures all eligible deductions are captured and that capital gains tax (CGT) is calculated correctly when you sell.

What records should you keep?

  • Purchase and sale records for five years after disposal
  • Rental income statements
  • Expense receipts (e.g., repairs, maintenance, council rates)
  • Loan statements showing interest

Well-organised records make tax time smoother and reduce any ATO risk.

How can Morrows Help?

Our tax advisers have extensive experience with rental property taxation and ATO compliance. However, the ATO is clear that the responsibility for accurate record‑keeping and reporting rests with the property owner.

So please reach out to your advisor if you need assistance or are unsure of what you are entitled to claim and what income needs to be reported.


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