Rental expenses you can claim now

Expenses you claim this year

You can claim an immediate deduction for some expenses in the income year you incur them provided your property is rented or genuinely available for rent. To claim a deduction you must:

• actually incur the cost – you can't claim a deduction where the cost is paid by the tenant or someone else
• keep adequate records to prove your deductions if we ask for evidence.

There are some rental expenses you must claim over several years – for example, capital works and borrowing expenses.

Expenses you can claim an immediate deduction for include:

• advertising for tenants
• body corporate administrative fund fees and charges
• council rates, water charges, land tax
• cleaning, gardening and lawn mowing
• pest control
• insurance (building, contents, public liability, loss of rent)
• interest expenses
• pre-paid expenses
• property agent's fees and commission
• repairs and maintenance
• legal expenses.

For more information, see Rental properties guide.

Body corporate administrative fund fees and charges

You may be able to claim a deduction for body corporate fees and charges you pay. Not all body corporate fees are deductible in full in the income year you incur them.

Body corporate fees are a cost you pay to the body corporate or strata to manage the property and maintain common areas. Strata title body corporates are constituted under the strata title legislation of the various states and territories.

These fees and charges may go towards payments to:

• cover the cost of day-to-day expenses to maintain and manage the building – for example, insurance premiums, maintenance of gardens and management of the body corporate itself
• a special purpose fund, for a specific expense – for example, roof repairs and building insurance.

Regular payments you make to body corporate administration funds or general purpose sinking funds for ongoing administration and general maintenance are considered to be payments for the provision of services by the body corporate. You can claim an immediate deduction for these regular payments at the time you incur them.

You can’t claim a deduction for a special levy you are required by the body corporate to pay to fund a particular capital improvement. You may be able to claim a capital works deduction for the cost of capital improvements or repairs of a capital nature once the work is completed. The cost must also be charged to either the special purpose fund or the general purpose sinking fund, if a special contribution has been levied.

For a summary fact sheet of what you can and can't claim download our PDF see, Rental properties – body corporate fees and charges.

Interest expenses

When you take out a loan for a rental property, you need to pay interest on the amount you borrow from your bank or lender. We refer to these as interest expenses. The principal amount is the money you borrow from your bank or lender.

If you use the principal amount to buy a rental property and it is rented or genuinely available for rent for the entire income year, you can claim a deduction for the interest charged on the loan.

You can only claim a portion of your interest expenses as a deduction if you either:

• use a portion of the principal amount to buy your rental property
• the property is rented or genuinely available for rent for part of the income year.

You can't claim a deduction for additional payments made to reduce the principal amount of the loan.

Watch: Claiming interest expenses

For a summary fact sheet of what you can and can't claim, download our PDF see, Rental properties – interest expenses.

Interest expenses you can claim

You can claim the interest expenses on the loan principal (mortgage) you use to:

• buy a rental property
• buy a depreciating asset for the rental property – for example, an air conditioner for the rental property
• pay for deductible expenses – for example, to make repairs to the property that arise as a result of you renting it out
• finance renovations and extensions to the rental property.

You can also claim interest expenses when:

• you have pre-paid interest expenses up to 12 months in advance
• during the period you're repairing damage to your rental property, making it uninhabitable while the repairs are taking place.

Interest expenses you can't claim

You can't claim a deduction for interest expenses:

• for any period the property is used for private purposes, even if it's a short period of time
• on the portion of the loan used for private purposes (for example, to purchase a car), either when
  • you took out the loan
  • you refinance the loan
• on a loan you used to buy a new home if you don't use the new home to produce income, even if you use your rental property as security for the loan.

Loan accounts used for private and rental expenses

If you have a loan account used for both private purposes and rental property expenses, you must keep accurate records to enable you to calculate the interest that applies to the rental property portion of the loan.

You must separate the interest relating to the rental property from any interest on funds used for private purposes.

You can't only repay the portion of the loan for your private purchases. All loan repayments must be apportioned across both rental and private portions of the loan for the length of the loan.

For apportionment calculations in these situations, see paragraphs 19 and 20 of TR 2000/2 Income tax: deductibility of interest on moneys drawn down under line of credit facilities and redraw facilities.

Thin capitalisation

Thin capitalisation rules may affect you if the combined debt deductions (for example, interest) of you and your associated entities are more than $2 million in any income year and you are:

• an Australian resident and you (or any associated entities) have  
  • certain international dealings
  • overseas interests
• a foreign resident (or associated entity) with certain investments in Australia.

You must consider the thin capitalisation rules each year.

Pre-paid expenses

A pre-paid expense is a cost you incur under an agreement for services to be done (in whole or in part) in a later income year. For example, payment of an insurance premium on 1 January that provides cover for the entire calendar year or interest on money you borrow.

You can generally claim an immediate deduction in the income year you make the prepayment for:

• expenses of less than $1,000
• expenses of $1,000 or more where the eligible service period is 12 months or less (such as payment of an annual insurance premium part way through an income year).

The eligible service period is the time taken for doing a thing to be done under an agreement in return for payment.

The eligible service period begins on the later of either:

• the day the thing under the agreement begins to be done
• on the day the expense is incurred.

The eligible service period continues until the earlier of:

• the end of the last day the thing under the agreement stops being done
• 10 years.

A pre-paid expense for your rental property of more than $1,000, where the eligible service period is greater than 12 months, will have to be spread over the shorter of either:

• the eligible service period
• 10 years.

For more information, see Deductions for prepaid expenses.

Repairs and maintenance

Repair and maintenance expenses are costs you incur to:

• keep your property in a tenantable condition
• fix wear and tear or damage that occurs as a result of renting out your property.

To be a deductible expense, the property must either:

• continue to be rented on an ongoing basis
• remain genuinely available for rent, even if there is a short period where the property is unoccupied – for example, unseasonable weather causes cancellations of bookings or all reasonable efforts to attract tenants were unsuccessful.

You can claim a deduction for repair and maintenance expenses in the income year you incur them.

You can't claim an immediate deduction for expenses that are capital or of a capital nature as repairs and maintenance. This includes initial repairs for defects that existed at the date you acquired the property, improvements to the property or for example, the replacement of an entire structure such as a fence. You may be able to claim these capital expenses over several years.

Watch: Getting repairs and capital works right

What you can claim immediately

You can claim a deduction for repair and maintenance expenses in the income year you incur them.

Repairs

Repairs are done to remedy defects in, damage to or deterioration of the property. Generally, repairs must relate directly to wear and tear or other damage that occurred as a result of renting out the property.

Any repairs for remedying damage that existed when you acquired the property are initial repairs and are capital in nature.

Examples of repairs you can claim immediately include:

• replacing a cracked pane of glass in a window
• replacing part of the gutter
• replacing part of a fence
• repairing electrical appliances or machinery.

If you no longer rent the property, you may still be able to claim repair expenses where both:

• the need for repairs related to a period when the property was income producing
• the property was income producing during the income year you incurred the expenses.

Repairs versus improvements

If you make both repairs and improvements to your property, you can only claim a deduction for the cost of repairs if you can separate the cost of the repairs from the cost of the improvements.

An improvement is anything that makes part of the property better, more valuable, more desirable or changes the character of the item that is being worked on (for example, a renovation).

If you hire a builder or other professionals to carry out these works, we recommend you ask for an itemised invoice to help work out your claim.

Maintenance

Maintenance means work to prevent deterioration or fix existing deterioration. Maintenance generally involves keeping your property in a tenantable condition.

Examples of maintenance include:

• repainting faded or damaged walls
• oiling, brushing or cleaning something that is otherwise in good working condition – for example, oiling a deck or cleaning a swimming pool
• maintaining plumbing.

What you can claim over several years

You can claim a deduction for certain capital repair expenses over several years. This may include:

• initial repairs, which are capital works
• improvements, which are capital works
• replacement of depreciating assets.

For more information see Rental expenses you can claim over several years.

Legal expenses

Rental property legal expenses are costs you incur to prepare, register, protect and manage your rental property.

You can claim a deduction for some of the legal expenses you incur to produce your rental income. You can claim these expenses in the income year you incur them.

You can claim the cost of the following as deductions:

• evicting a non-paying tenant
• expenses for taking court action for loss of rental income
• defending a claim for damages from injuries suffered by a third party on your rental property.

You can also claim a deduction for solicitor’s fees for the preparation of loan documents as borrowing expenses. If the total of your borrowing expenses is more than $100, your deduction is spread over the life of the loan or 5 years, whichever is less.

Most other legal expenses you incur relating to your rental property are capital and can’t be claimed as a deduction. The following legal expenses may be included in the cost base when you sell the property:

• solicitor's fees for the purchase or sale of the property
• legal costs associated with resisting land resumption
• legal costs associated with defending your title to the property (for example, defending an action by the mortgagee to take possession of the property where you have defaulted under the loan).

For more information about how tax applies to rental properties, see:

• Capital gains tax guide
• Depreciating assets guide.

Work out the category of your rental expenses

It is important to correctly categorise each expense to ensure it is treated correctly for tax purposes. Our quick reference guide in the table below will help you to work out which category your expense relates to.

Table: working out the category of your rental property expense

Situation	Category	Example	Claim at
Replacing something that is worn out, damaged or broken as a result of renting out the property	Repair	Replacing part of a fence damaged in a storm Hiring a plumber to fix a leaking tap	Repair and maintenance
Preventing or fixing deterioration of an item that occurred while renting out the property	Maintenance	Repainting faded interior walls Re-oiling a deck	Repair and maintenance
Repairing damage that existed when the property was bought (whether it was known at the time of purchase or not)	Initial repair	Fixing floorboard or repairing deteriorated window frames and the damage existed when the property was bought	Capital works Unless the work involves replacing a damaged depreciating asset – such as an oven. This is an initial repair and the construction expenditure is written off at 2.5% over 40 years.
Replacing an entire structure that is only partly damaged	Capital works	Replacing all the fencing, not just the damaged portion	Capital works
Renovating or adding a new structure to the property	Capital works	Adding a carport	Capital works
Installing a brand new appliance or window covering	Depreciating asset	Buying a new dishwasher Installing new blinds	Capital allowances

For more information, see Rental expenses you claim over several years.