Rental property tax essentials – Mastin Harris Accountants

Why it matters

Rental schedules are one of the most common areas the ATO reviews — mostly because mistakes are easy to make.

Claim what you’re entitled to

Most landlords miss deductions because invoices are lost, interest is unclear, or depreciation isn’t considered.

Avoid incorrect claims

Overclaiming repairs, mixed-purpose loan interest, or private use can create compliance problems and amendments.

Better property decisions

Good records and a clean schedule help you see the real cashflow and performance of the property.

Tell it like it is: the ATO problems usually come from poor records and “everything is a repair” thinking.

The key rental tax basics (plain English)

These are the concepts that drive most rental tax outcomes.

1) The property must be genuinely available for rent

To claim ongoing expenses, the property generally needs to be genuinely available to rent at market rates.
If it’s blocked out for private use, or listed at an unrealistic rent, that can affect deductions.
Keep evidence: agent listings, rental advertising, lease agreements, tenant communications.

2) Interest deductibility depends on the purpose of the loan

Interest is generally deductible to the extent the borrowing is used to earn rental income.
If you redraw for private spending, the loan becomes mixed-purpose and interest needs to be apportioned.
Best practice is separate loan splits and avoiding redraw for private use.

If you’re unsure whether your loan is “clean”, ask before tax time — it’s much easier to fix early.

3) Repairs vs improvements (the classic trap)

Repairs generally restore something to its original condition (often deductible immediately).
Improvements upgrade or replace something in a way that improves it (often capital, claimed over time).
Large renovations and “initial repairs” soon after purchase are often capital in nature.

If you replace multiple items at once or materially upgrade, assume it will need review — don’t automatically treat it as a repair.

4) Depreciation and capital works can be meaningful

Capital works (Division 43) deductions may apply to eligible building/renovation costs over time.
Depreciation for certain assets depends on the property type and asset rules.
A depreciation schedule can help support and track deductions across years.

Keep renovation invoices and dates. Depreciation is a paperwork game.

What to keep (records that make tax time easy)

If you can produce these quickly, you are in a strong position.

Income records

Property manager annual statement / rent ledger
Lease agreements and rent review notices
Evidence of vacancy periods and advertising
Insurance payouts or compensation (if any)

Expense records

Loan statements (interest and any fees)
Rates, water, strata/body corporate levies
Insurance invoices and policy schedule
Repairs/maintenance invoices (with clear descriptions)
Property management fees and other agent charges

Special levies and strata notices

Strata levies and special levies can be treated differently depending on what they relate to (maintenance vs capital works). Keep notices and meeting minutes from the owners corporation when they explain what the levy funds.

Common pitfalls (and how to avoid them)

These mistakes cause the most headaches, amendments, and missed deductions.

Pitfalls we see often

Interest doesn’t reconcile due to redraw for private use (mixed loan).
Claiming improvements as repairs (especially after purchase or during renovations).
Not tracking vacancy/availability and private use properly.
Not retaining invoices for “big” items (hot water systems, split systems, fences, etc.).
Not updating depreciation schedules after renovations or asset replacements.

What to do instead

Keep loan splits separate and document any top-ups.
Flag anything “big” or structural for review (don’t auto-classify).
Keep evidence of rental availability (ads, listings, agent correspondence).
Store invoices as you go (one folder per property per year).
Update the depreciation schedule when you improve or replace assets.

Mixing private and investment spending through one loan is the fastest way to make rental tax messy.

Best-practice checklists

Use these to keep rental tax simple and compliant year-round.

Monthly checklist

Save property manager statement / rent ledger.
Save invoices for repairs and maintenance (note what was done).
If a loan change occurred, record the purpose of any redraw/top-up.
Flag “big” works (renovations, special levies, major replacements).

Pre-30 June checklist

Confirm all invoices are saved and readable.
Download loan annual statements (interest summary).
Confirm vacancy/availability periods are documented.
Review any major works for repairs vs improvements treatment.
If renovations occurred, gather invoices for depreciation/capital works review.

If you do nothing else: keep loan use clean and keep invoices. That’s 90% of rental compliance.

Case studies (good and bad)

Same property type. Different habits. Very different tax outcomes and stress levels.

Best practice

Good case study: “Clean records, clean claim”

A landlord uses a property manager, saves the annual statement, and keeps invoices in a cloud folder. Their loan is split: the investment split is never redrawn for private spending. When a major replacement happens, they flag it for review and keep full documentation.

Tax time is quick: income and expenses reconcile, the interest claim is clear, and major works are treated correctly.

Outcome: correct deductions, lower audit risk, lower accounting time and cost.

Avoid this

Bad case study: “Everything is a repair”

A landlord buys an older property and immediately replaces multiple items and upgrades finishes. They claim it all as repairs, don’t keep clear invoices, and their loan has private redraw mixed in.

The return becomes difficult to support. The interest needs apportionment, and the repairs/improvements treatment is likely wrong. This increases amendment risk and professional fees.

Outcome: higher cost, more risk, and a higher chance deductions are disallowed or delayed.

If you’re planning a refinance, redraw, or major renovation, ask before you do it — it’s much easier to structure and document correctly upfront.

ATO resources (Australia)

Useful official starting points (general guidance).

General information only. This page is not tax or legal advice and does not consider your personal circumstances.

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