Is rental income taxable in Australia?

Yes. You declare the full rent you receive as assessable income, then claim the expenses of holding and managing the property. Tax applies to the net result — rent minus deductible expenses — at your marginal rate, added to your other income.

What expenses can I claim on a rental property?

Loan interest, council and water rates, insurance, property management and agent fees, repairs and maintenance, advertising for tenants, body corporate fees, pest control, gardening, and depreciation. Most are claimed in the year you incur them; capital works and plant are claimed gradually as depreciation. You can only claim for the periods the property was rented or genuinely available to rent.

What is the difference between a repair and an improvement?

A repair restores something to its original condition (fixing a leaking tap, replacing broken tiles) and is deductible immediately. An improvement makes something better than it was (a new kitchen, an extension) and is capital — claimed slowly as depreciation, not deducted in one year. Initial repairs to fix problems that existed when you bought are also treated as capital.

Can I claim depreciation on my rental property?

Often yes. Capital works (the building structure) can usually be depreciated at 2.5% a year for up to 40 years if built after 1987. Plant and equipment (carpets, appliances, blinds) can also be depreciated, though since May 2017 deductions for previously-used plant in second-hand residential properties are restricted. A quantity surveyor's depreciation schedule helps you claim correctly.

How is my rental property taxed when I sell it?

Selling triggers capital gains tax. The gain (sale price minus the cost base) is added to your income, and if you owned it more than 12 months as an individual you get the 50% CGT discount. Capital works deductions you claimed generally reduce your cost base, which can increase the taxable gain. Your main home is usually exempt; an investment property is not.

Do I split rental income if I own the property with someone?

Yes. Co-owners declare the rent and claim the expenses in line with their legal ownership share — for example 50/50 as joint tenants. You cannot choose to allocate more of the loss to the higher earner; it follows the ownership on the title.

What records do I need for a rental property?

Keep all income and expense records, loan statements, rates and insurance notices, agent statements, receipts for repairs, and your depreciation schedule. Also keep purchase and sale contracts and records of any capital improvements — you will need them to work out capital gains tax when you sell. Keep records for at least five years after you lodge, and longer for CGT.

Rental Property Tax & Negative Gearing (Australia 2025-26)

Q: What is negative gearing?

Negative gearing is when your deductible rental expenses (interest, rates, management, repairs, depreciation) are more than the rent you receive, so the property runs at a loss. That net rental loss is offset against your other income, such as your salary, reducing your overall tax. The trade-off is that you are genuinely out of pocket on the property.

An investment property can be one of the most powerful — and most misunderstood — parts of your tax return. Here is how rental income, deductions, negative gearing and depreciation work for 2025-26, in plain English.

Quick answer

You declare your full rent as income and claim the expenses of holding the property. If those expenses exceed the rent, the property is negatively geared and the loss reduces the tax on your other income. Hold it over 12 months and the 50% CGT discount applies when you sell.

How is rental income taxed?

Rental income is assessable income. You include the full rent you received during the year, then subtract the deductible expenses of earning it. The result — your net rental income or loss — is added to (or subtracted from) your other income and taxed at your marginal rate.

Positively geared: rent is more than your expenses, so the property makes a profit and adds to your taxable income.
Negatively geared: expenses are more than the rent, so the property makes a loss that reduces your taxable income.

What is negative gearing — really?

Negative gearing is simply borrowing to invest in a property that costs more to hold than it earns. Because the net rental loss offsets your salary and other income, your tax bill falls. People do it expecting the property's capital growth to more than make up for the yearly losses.

It is important to be clear-eyed: negative gearing saves tax, but you are still genuinely out of pocket each year. A $5,000 loss might save you $1,500 in tax at a 30% rate — but you are still $3,500 down in cash. The strategy relies on the property rising in value over time.

What you can claim

You can claim the expenses of earning rental income, for the periods the property was rented or genuinely available to rent. Common deductions include:

Loan interest on money borrowed to buy the property
Council and water rates
Building and landlord insurance
Property management and letting fees
Repairs and maintenance (see below)
Body corporate / strata fees
Advertising for tenants, pest control, gardening, cleaning
Depreciation of the building and assets (see below)

You must apportion if the property was only rented part of the year, or if you used it privately (such as a holiday home you also let out).

Repairs vs improvements: a costly distinction

This trips up many investors. The two are treated very differently:

	Repair / maintenance	Improvement / capital
What it is	Restores the original condition	Makes it better than before
Example	Fixing a leaking tap, repainting	New kitchen, an extension
How you claim	Deducted in full this year	Depreciated slowly over years

One catch: initial repairs — fixing defects that existed when you bought the property — are treated as capital, even if they look like repairs.

Depreciation

Two kinds of depreciation can apply:

Capital works (the building): generally 2.5% per year of the construction cost for up to 40 years, if built after 1987.
Plant and equipment (assets): carpets, blinds, appliances and the like. Note that since May 2017, deductions for previously used plant in second-hand residential properties are restricted to assets you bought new.

A quantity surveyor's depreciation schedule is usually worth its cost — it can unlock thousands in legitimate deductions you would otherwise miss.

When you sell: capital gains tax

An investment property is not covered by the main residence exemption, so selling it triggers capital gains tax. The gain is added to your income; if you held it more than 12 months as an individual, the 50% discount applies. Remember that the capital works deductions you claimed along the way generally reduce your cost base, which can increase the taxable gain — so factor that in. See our capital gains tax guide for the full picture.

Frequently asked questions

See your rental property's real tax impact

EOFYmate's full builder takes your rent and every expense — interest, rates, insurance, management, repairs and depreciation — and shows the net effect on your refund, negative gearing included.

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Related guides

This guide is general information only and not personal tax advice. Always confirm with the ATO at ato.gov.au or a registered tax agent before lodging.

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