Tax on Rental Income in Australia: What Landlords Must Know
How is rental income taxed in Australia? Learn what to declare, what to deduct, and how negative gearing works, all in plain English.
By Timothy Hirou GaschereauPublished 12 min read
Owning a rental property is one of the most common ways Australians build wealth, but come tax time a lot of landlords are surprised by what they do (and do not) have to declare. Tax on rental income in Australia is simple in principle: your rent is added to your other income and taxed at your marginal rate. The complexity is in the details, and the details matter a lot.
This guide walks through the key rules in plain English, from what counts as income to what happens when you sell. It is general information only, not tax advice, so always check the ATO or a registered tax agent for your situation.
🎯 The essential: Rental income is assessable: declare all rent PLUS bond you keep and insurance payouts for lost rent, taxed at your marginal rate. Deduct expenses for the period the property is rented or available for rent (interest is usually the biggest). Repairs are immediate; improvements depreciate over ~40 years. A rental loss (negative gearing) offsets your other income. CGT applies when you sell, with a 50% discount if held over 12 months.
What counts as rental income
There is no special “rental tax rate”. Your rental income is assessable income, added to your salary or other earnings and taxed at your marginal rate (nil to 45% plus the Medicare levy for 2024-25). You must declare all rent received, whether paid to you directly or through a property manager, plus:
- Bond money you keep for unpaid rent or damage
- Insurance payouts that compensate you for lost rent
- Reimbursements from tenants for expenses you originally paid
In short: if it flows to you because of the rental arrangement, the ATO wants to know about it.
What you can deduct
The good news: you can claim a wide range of expenses against your rental income. The golden rule is that the expense must relate to the period the property is rented or genuinely available for rent. Common deductions:
- Loan interest (usually the biggest, especially in the early years)
- Council rates, water charges and land tax
- Property management and agent fees
- Repairs and maintenance, landlord insurance, strata or body corporate fees
- Depreciation on eligible assets
The “available for rent” rule is critical. If the property sits vacant while you decide what to do with it, or while you renovate, you generally cannot claim deductions for that period. It needs to be actively listed and genuinely available to tenants.
Repairs vs improvements vs depreciation
This is the section most landlords get wrong. A repair restores something to its original working condition (fixing a leaking tap, patching a wall) and is generally deductible immediately. An improvement adds value or extends the life of the property (renovating a kitchen, adding a deck) and is not immediately deductible: it is claimed as depreciation over time.
- Capital works (Division 43): generally 2.5% per year over 40 years for eligible construction. Spend $40,000 on a granny flat and you claim about $1,000 a year, not the lot upfront.
- Plant and equipment (Division 40): assets like ovens and carpets, depreciated over their effective life. BUT since 9 May 2017 you generally cannot claim depreciation on previously used (second-hand) plant and equipment in a second-hand residential property.
| Type | Example | How it is claimed |
|---|---|---|
| Repair | Fixing a leaking tap, patching a wall | Deductible immediately, this year |
| Improvement / capital works | Renovating a kitchen, adding a deck | Depreciated (generally 2.5%/yr, Division 43) |
| Plant and equipment (new) | A new oven you install | Depreciated over effective life (Division 40) |
| Second-hand plant (post-9 May 2017) | A dishwasher in an established home you bought | Generally NOT claimable |
A quantity surveyor can prepare a depreciation schedule mapping every eligible asset, which is often worth it for newer properties.
Negative vs positive gearing
If your deductible expenses exceed your rental income, you make a rental loss, and that loss can be offset against your other assessable income (like your salary), reducing your overall tax. That is negative gearing. If rental income exceeds expenses, you are positively geared and pay tax on the net profit. Many Australian landlords are negatively geared early on, when interest costs are high relative to rent.
We are not here to tell you whether it is a good strategy: that depends entirely on your situation, goals and the property. The tax treatment itself is well-established, and our glossary entry on negative gearing covers the mechanics.
Co-ownership and the private-use trap
If you co-own a rental with someone, you each declare income and claim deductions in proportion to your legal ownership share, not necessarily 50/50. Own 70% and your partner 30%, and you declare 70% of the income and claim 70% of the deductions. Each co-owner lodges their own return, so check your title documents first.
And the private-use trap: if you use the property yourself (a holiday home you rent out part of the year), you can only claim deductions for the portion of time it is genuinely available for rent, apportioned accordingly. You also cannot claim for periods listed at an unreasonably high rent that discourages bookings. The ATO watches holiday homes closely.
Records and CGT when you sell
Keep records of all rental income and expenses for generally at least five years from lodgement. For capital gains tax (CGT), keep purchase, sale and capital-improvement records for as long as you own the property plus five years after selling, which can be decades.
When you sell, CGT applies: the gain (sale price minus cost base) is added to your income and taxed at your marginal rate, with the 50% discount if you held for more than 12 months. Your main residence may be fully or partially exempt. The mechanics mirror our guide to capital gains tax on shares, and there is a dedicated CGT on property guide for the detail.
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❓ Frequently asked questions
How is rental income taxed in Australia?
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Rental income is assessable income, added to your other income for the year and taxed at your marginal rate, not a separate rental tax rate. For 2024-25, marginal rates range from nil to 45% plus the Medicare levy. You reduce the taxable amount by claiming allowable deductions against your rental income.
What expenses can I claim on a rental property?
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Expenses incurred while the property is rented or genuinely available for rent: loan interest, council rates, water charges, land tax, property management fees, repairs and maintenance, landlord insurance, and strata fees. Depreciation on eligible assets is also claimable. Check the ATO for the full list, as the rules have important nuances.
Is a repair deductible immediately?
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Generally yes. A repair that restores something to its original working condition (fixing a leaking tap, replacing a broken fence panel) is typically deductible in the income year you pay for it. An improvement that adds value or extends the life of the property is not immediately deductible and is claimed as depreciation over time. The line can be blurry, so check with a registered tax agent if unsure.
What is negative gearing?
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Negative gearing is when your deductible rental expenses exceed your rental income, creating a rental loss. That loss can offset your other assessable income, such as your salary, reducing your overall tax for the year. Many Australian landlords are negatively geared, especially early on when interest costs are high. It is a legal, well-established tax treatment.
Do I pay tax on rental income if I co-own the property?
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Yes. Each co-owner declares income and claims deductions in proportion to their legal ownership share, which may not be 50/50. Each co-owner lodges their own tax return. Check your title documents to confirm the actual split before you lodge.
Do I pay CGT when I sell my rental property?
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Yes, CGT generally applies. The capital gain is added to your assessable income and taxed at your marginal rate. Held more than 12 months, you may get the 50% CGT discount, halving the taxable gain. Your main residence may be fully or partially exempt. Speak to a registered tax agent before you sell, as property CGT can be complex.
Keep reading
📚 Recommended reading
The Barefoot Investor
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The Barefoot Investor
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Australia's best-selling money book ever. A simple system for accounts, budgeting, debt and a real emergency fund in one.
Making Money Made Simple
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Making Money Made Simple
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Australia's classic, comprehensive money guide covering tax, super and investing, updated for today.
Some links above are affiliate links. If you buy through them, Snowball Invest may earn a small commission at no extra cost to you. We only recommend books we'd suggest anyway.
Sources
This article is general information only, not tax or financial advice. Rental tax rules, depreciation and CGT are set by the ATO and can change. Check the ATO or a registered tax agent for guidance specific to your property and situation.
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General information only. This article is educational and does not constitute personal financial advice. It does not account for your circumstances. Consider your own situation and seek advice from a licensed adviser before acting. Read our full disclaimer.
Timothy Hirou Gaschereau
Founder of Snowball Invest, not a financial adviser.
I write about what I'm learning myself, because nobody ever taught us how to take control of our own money. It's a skill, not a mystery, and it's never too late to learn it. The best day to start was yesterday, the second best is today.
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