Owning your own home is one of those quintessential Australian dreams, and for some, that dream extends beyond their own home. Despite tighter lending conditions and rising holding costs, investment property remains one of the most popular ways Australians build wealth.

According to ATO data, over 2 million Australians now own at least one property. The vast majority are small-scale investors who own one or two additional homes, aiming to grow their wealth and create a secondary income source. Most of these investors don’t rely on these properties as their primary source of income.

If you are one of these investors or are looking to become one, then there are a few things you should know about the taxation implications of these investments.

 

taxable income

 

If you have an investment property, any income received from this property will be taxable income. This will include:

  • Rental income
  • Reimbursements for tenant repairs or other allowable deductions
  • Insurance payouts relating to the property

 

what are the allowable deductions?

 

There are many allowable deductions that can be used to offset the income from your rental property if they are incurred while the property is available for rent. These include:

  • Advertising for tenants
  • Body corporate fees + charges
  • Cleaning
  • Council rates
  • Gardening + lawn mowing
  • Interest on loans used to purchase or improve the property
  • Land tax
  • Repairs + maintenance
  • Real estate agent management fees

These are only some of the expenses. To ensure you can get the maximum claim available, you should always keep records and receipts of ALL transactions related to your property.

Please note that since 2017, you can no longer claim travel expenses to visit the property, and under most circumstances, these will now be denied.

 

what about negative gearing?

 

Negative gearing occurs when the allowable deductions against your rental property income cause the property to have a negative return [loss]. This loss is then offset against your other taxable income, such as your salary and wages. This is how investors are able to generate tax refunds by using their investment properties.

 

how does depreciation work?

 

When you invest in a property to rent out you can claim two types of depreciation. The first is based on the decline in value of the building itself – these are capital works deductions. The second is based on the decline in value of  “plant + equipment” such as air conditioners, stoves and appliances.

To be able to claim these deductions you will need to obtain a quantity surveyor report from a registered provider. This report will provide you with the details of depreciation claims available to you based upon their assessment of the deductible values.

Please note that from 1 July 2017, there are new rules for deductions relating to second-hand depreciating assets and you may no longer be able to claim these items if you acquired a property after 9 May 2017.

 

what about repairs?

 

It is important to know the difference between repairs [which are deductible immediately] and capital improvements [which are depreciated over time].

Repairs are done to remedy damages or deterioration of the property that has occurred while you rented it out [can’t be initial repairs]. These repairs cannot make the property more valuable or change the nature of the item being worked on [such as a renovation].

Items such as replacing a cracked pane of glass in a window is a repair, as it restored the property to its original condition. However, replacing the window with a new louvre design is a capital improvement that changes the character of the asset. This would need to be depreciated and cannot be claimed immediately.

 

what happens if I sell my investment property?

 

Selling an investment property is usually a capital gains tax event and if you make a gain, you are likely to pay capital gains tax.

The capital gains will be calculated by determining the profit made on the sale. Broadly speaking, this is the difference between what you sold the property for and what you bought the property for. The actual calculation is more complicated than this, especially if you have been claiming depreciation, but this is a good starting point.

Any allowable concessions will then be applied to this gain, the most common is the 50% discount, which will halve the profit if you have held the property for more than 12 months. Once you have the final capital gain figure after all deductions and concessions, you will pay tax at your marginal rate on this amount.

 

what now?

 

If you have any more questions about your investment and the taxation implications, please do not hesitate to reach out. Get in touch at oneplace@businessdepot.com.au or give us a buzz in 1300 BDEPOT.

 

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Originally published 4 March 2019. Updated 13 October 2025.