Rental Property Tax Guide for 2025: What Landlords in Australia Need to Know

Owning a rental property in Australia can be a great investment, but it also comes with important tax obligations. Whether you’re a new landlord or a seasoned property investor, understanding how the Australian Taxation Office (ATO) expects you to report income and expenses is crucial for staying compliant and maximising your returns.

At Rod Accounting & Financial Services in Geelong, we help property owners navigate the complex world of rental property taxation. This article summarises the ATO’s Rental Properties Guide 2025, helping you understand what you can claim, how to declare your rental income correctly, and what records you need to keep.

What Is Rental Income?

Rental income includes any payments you receive when you rent out a property. This can be from:

• Residential rental properties
  
• Short-term holiday rentals (e.g. Airbnb)
  
• Rooms or parts of your home (e.g. subletting)
  
• Insurance payouts or bond money retained
  
• Reimbursement for expenses paid by you (e.g. water or electricity)
  

Tip: All rental income must be declared in your individual tax return under “Rental and other income”.

What Rental Expenses Can You Claim?

The ATO allows landlords to claim a wide range of deductions to reduce their taxable rental income. These fall into three main categories:

1. Immediate Deductions (Claimed in the same year)

These include:

• Advertising for tenants
  
• Council rates and water charges
  
• Property management fees
  
• Interest on your investment loan
  
• Insurance (building, contents, landlord)
  
• Repairs and maintenance
  
• Legal expenses (related to managing tenants)
  

Repairs must be for wear and tear, not improvements or renovations. Replacing a broken tap = deductible. Replacing the entire kitchen = capital works (see below).

 2. Deductions Over Time (Depreciation & Capital Works)

Some costs must be claimed over several years, such as:

• Capital works: Structural improvements like extensions, new roofs, fences. Claimed at 2.5% per year over 40 years.
  
• Depreciation: Decline in value of assets like appliances, carpets, or air conditioners.
  

You’ll need a depreciation schedule prepared by a quantity surveyor or qualified accountant to claim correctly.

3. Expenses You Cannot Claim

Not all costs are tax-deductible. You can’t claim:

• Personal use of the property (even a few days!)
  
• Costs related to buying or selling (e.g. stamp duty, conveyancing)
  
• Travel expenses to inspect rental properties (for individuals)
  
• Loan principal repayments
  

If the property was vacant or used privately, expenses must be apportioned accordingly.

Partial Use of the Property? Apportion Correctly

If your rental property is only available for part of the year, or if you use it for personal holidays, you can only claim a proportion of your expenses.

Example:
You rent your beach house for 9 months, and use it personally for 3. You can only claim 75% of your allowable expenses for the year.

Failing to apportion correctly is one of the most common ATO audit triggers.

What Records Do You Need to Keep?

To support your rental property claims, you must keep accurate records for at least 5 years, including:

• Lease agreements
  
• Income receipts
  
• Loan documents and interest statements
  
• Property agent reports
  
• Invoices for maintenance, council rates, and insurance
  
• Depreciation schedules
  
• Dates the property was rented or vacant
  

The ATO may request proof during audits, especially for claims related to repairs, borrowing expenses, or private use.

Selling a Rental Property: What to Know About CGT

If you sell your rental property, it may be subject to Capital Gains Tax (CGT). Here’s how it works:

• CGT applies to the profit (capital gain) made when you sell the property
  
• You’re taxed on the net capital gain (sale price – purchase cost – associated expenses)
  
• If you held the property for more than 12 months, you may be eligible for a 50% CGT discount
  

Important: If the property was your main residence at any time, you may be partially exempt. But accurate records are vital to calculate this correctly.

What Is Negative Gearing?

Negative gearing occurs when your rental expenses exceed the income, resulting in a net rental loss. This loss can be used to reduce your other taxable income, such as from employment or business.

Negative gearing can be a legitimate tax strategy, but it must be based on genuine investment intent, not just to reduce tax. The ATO watches closely for incorrect claims, especially when interest-only loans and deductions are involved.

PAYG Instalments for Property Investors

If you earn a significant amount from rental income, the ATO may require you to start Pay As You Go (PAYG) instalments.

• This means you’ll pre-pay part of your expected tax throughout the year
  
• PAYG instalments help avoid a large tax bill when lodging your return
  
• The ATO will notify you automatically, or you can voluntarily opt in
  

For more on this, see our article: What Are PAYG Instalments and How Do They Work?

GST and Rental Properties, Do You Need to Register?

Generally, residential rental income is exempt from GST, and you cannot claim GST credits on related expenses.

However, if you’re renting commercial property, or offering short-term stays (e.g. Airbnb), you may be required to:

• Register for GST if turnover exceeds the $75,000 threshold
  
• Charge GST on rent
  
• Lodge Business Activity Statements (BAS)
  

This area can be complex, it’s worth speaking to an accountant to make sure you comply.

2025 Tax Tips for Property Owners

Here are our top tips for landlords and property investors in 2025:

1. Keep digital records of all income and expenses using a reliable accounting platform
   
2. Don’t claim expenses for vacant periods or personal use
   
3. Ensure repairs are truly repairs, not improvements
   
4. Get a depreciation schedule if your property has fixtures worth over $300
   
5. Declare all income, even if it’s from short stays or part-time rentals
   
6. Speak to a tax advisor before selling, CGT can be complex
   
7. If in doubt, ask. It’s better to be safe than audited
   

Need Help With Your Rental Property Tax?

Managing a rental property can be rewarding, but it comes with rules, and mistakes can be costly. Whether you own one property or a full investment portfolio, we can help.

At Rod Accounting & Financial Services, we specialise in:

• Rental income tax returns
  
• Property-related deductions
  
• Depreciation schedules
  
• Negative gearing advice
  
• PAYG planning for investors
  
• Capital gains tax guidance
  

We help landlords across Geelong and Australia-wide, with support available in English and Persian.

📞 Book your free 15-minute consultation today and let us make your property tax simple, stress-free, and fully compliant with the ATO’s latest guidelines.