Real-Life Guide: Investment Property Tax Deductions in Australia (with Example)
Investing in property in Australia not only builds your asset portfolio—it also opens the door to valuable tax deductions if you know what expenses qualify. From interest on loans to depreciation and essential maintenance, these write-offs can have a big impact on your yearly cash flow.
Below, we break down which expenses you can claim and provide a practical example that outlines how the tax rules work in a real scenario.
What Expenses Can You Claim?
1. Immediate Deductions (Claim in the Year Expenses are Incurred)
- Interest on your investment loan
- Property management fees and advertising costs
- Repairs, insurance, and council rates
- Cleaning, utilities, legal fees, and administrative expenses
2. Deductions Spread Over Time
- Borrowing expenses (such as loan setup fees)
- Depreciation for both the building and plant/equipment
- Renovations and capital improvements
- Quantity surveyor costs
Example: Emma, a First-Time Investor
Profile: Emma, who earns $100,000 per year, owns a 2-bedroom investment unit in Brisbane that she bought in July 2023.
Property Price: $600,000
Loan Amount: $540,000 (90% LVR)
Interest Rate: 6.0%
Rent Income: $550/week, which totals $28,600/year
Occupancy: Fully tenanted
Emma's Deductible Expenses for FY 2024
| Expense Category | Amount | Deduction Type |
|---|---|---|
| Interest on Loan (6%) | $32,400 | Immediate |
| Property Management Fee (7%) | $2,002 | Immediate |
| Advertising for Tenants | $600 | Immediate |
| Council Rates | $2,200 | Immediate |
| Landlord Insurance | $1,000 | Immediate |
| Strata/Body Corporate Fees | $3,000 | Immediate |
| Repairs (e.g., leaking tap) | $750 | Immediate |
| Building Depreciation | $6,000 | Over 40 years |
| Appliance Depreciation | $1,500 | Over asset life |
| Loan Establishment Fee | $1,200 (or $240 per year over 5 years) | Over time |
Total Deductions for FY 2024:
Immediate Deductions: $42,952
Annual Portion of Long-Term Deductions: $7,500 (depreciation) + $240 (loan fees)
Total Deductible Amount: $50,692
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- Maximise tax deductions and improve cash flow
- Understand Division 40 vs 43 and how to claim both
- Position yourself to reinvest and scale faster
Tax Savings Explained
With a marginal tax rate of approximately 34.5% on a $100,000 income, Emma could save around 34.5% of her deductible expenses. In this example, her tax saving is estimated at:
Tax Saving: $50,692 × 34.5% ≈ $17,488
After-Tax Financial Outcome
Net Rental Income: $28,600 – $42,952 = –$14,352 loss
Tax Offset: Approximately $17,500, which helps to mitigate the cash flow shortfall.
Key Takeaways
- A wide range of property expenses can reduce your taxable income, both immediately and over time.
- Even properties generating a net rental loss can be beneficial because of the available tax offsets.
- Maintaining accurate records and obtaining a comprehensive depreciation schedule is essential.
Important Considerations
Repairs Versus Capital Improvements
It is important to differentiate between:
- Repairs & Maintenance: Costs to restore items to their original condition, claimed immediately.
- Capital Improvements: Expenses for upgrades or adding new features, which are deductible over time.
Depreciation Schedules
A depreciation schedule prepared by a qualified quantity surveyor can uncover significant additional deductions. Properties built after September 1987 typically benefit the most, although older properties may also realize substantial claims on renovations and fittings.
Mistakes to Avoid
- Claiming expenses that are not related to the property.
- Overlooking deductions because of poor record-keeping.
- Failing to appropriately apportion expenses if only part of the property is rented.
- Not revising claims when refinancing your loan.
Maximizing Your Tax Benefits
To ensure you claim every eligible deduction, consider these steps:
- Keep detailed records of all property-related expenses.
- Invest in a professional tax depreciation schedule from a qualified surveyor.
- Consult with an accountant experienced in investment properties.
- Regularly review your investment loan to secure competitive rates.
Curious about your potential savings? Chat with our team to develop a tailor-made tax strategy for your investment portfolio.
