Investment Property Tax Deductions Australia: The Complete FY2025–26 Tax Return Guide

All rules, figures and worked examples verified against the ATO's rental expenses guidance (pages last updated 21–22 May 2026), TR 2026/1 (issued 20 May 2026) and the Budget 2026–27 Negative Gearing and CGT Reform factsheet. This is general information, not tax advice — a good accountant who knows your rental property file remains the best money a landlord spends each July.

Tax time 2026 is the busiest deduction season property investors have faced in years, and not because the rules for this return changed. Your FY2025–26 rental schedule works the same way it did last year. What has changed is everything around it: the ATO finalised a new umbrella ruling on rental income and deductions (TR 2026/1) and two compliance guidelines on apportionment and holiday homes in May 2026, refreshed its entire rental-expenses guidance in the same month, and the negative gearing and CGT reforms legislated in June 2026 mean the return you lodge for FY2027–28 may treat your rental losses very differently depending on when you bought.

So this guide does two jobs. First, the complete, current deduction rulebook — what you can claim now, what you claim over time, what you can never claim, and the traps the ATO's new guidance targets. Second, a clear map of which rules are changing from 1 July 2027 and which cohort of investor you're in when they do.

This guide is written for individual investors and joint owners — negatively or positively geared, long-term landlords and holiday-let owners alike. Companies, developers, build-to-rent operators and commercial property investors play under different rules and should look past it. Everything here is drawn from the ATO's published guidance (current as at its May 2026 update) and the Treasury Budget factsheets, with the relevant rulings named so you or your accountant can go to the source. It is general information, not tax advice; a good accountant who knows your rental property file remains the best money a landlord spends each July.

What's New for Tax Time 2026

Four developments matter this July:

1. TR 2026/1 replaces the ATO's 40-year-old rental ruling. Issued 20 May 2026, the new legally binding public ruling Income tax: rental property income and deductions for individuals who are not in business replaces IT 2167, which had governed non-economic rentals, holiday homes and family arrangements since the 1980s (withdrawn when the draft issued on 12 November 2025). Most of it restates settled positions built on decades of case law — the Ronpibon Tin apportionment principle, Sun Newspapers on the capital/revenue divide — covering when rent is assessable, apportionment for private use, and co-ownership splits. One part is genuinely new: the ATO has, for the first time, publicly applied the “leisure facility” deduction-denial rule in section 26-50 of the Income Tax Assessment Act 1997 to holiday homes that are also rented out — by the ruling's own admission, a view “not previously been publicly expressed in relation to rental properties.”

2. Two new Practical Compliance Guidelines set the audit posture. PCG 2026/2 (Apportionment of rental property deductions — ATO compliance approach) tells you how the ATO will grade apportionment methods for part-year and part-property rentals. PCG 2026/3 explains how the ATO will approach the section 26-50 holiday home test in practice. If you have an Airbnb room, a beach house, or a property rented to relatives, these are the documents that describe how your claim gets reviewed. There is one piece of genuine relief: because the section 26-50 view is new, TR 2026/1's transitional compliance approach says the ATO will not devote compliance resources to applying section 26-50 to holiday home expenses incurred before 1 July 2026 (absent avoidance, fraud or evasion) — which covers everything in the FY2025–26 return you're lodging now. From FY2026–27, the new test applies with full force.

3. The rental-expense guidance was refreshed wholesale in May 2026. Every core ATO rental-expenses page now carries a 21–22 May 2026 update date. The rules described in this guide reflect that current guidance, not older summaries still circulating in investor forums.

4. The negative gearing and CGT reforms are legislated but not yet live. From 1 July 2027, negative gearing on established residential property is limited based on when you purchased, and the 50% CGT discount is replaced by cost-base indexation plus a 30% minimum tax on gains accruing after that date. None of this touches your FY2025–26 return. All of it should inform how you structure from here — the final section covers the transition in detail, and our guide to the reform package covers the politics and design.

The Three Categories: Now, Later, Never

The entire rental deduction system runs on one sorting exercise. Before any dollar goes in your return, it lands in one of three buckets:

Source: ATO, “How to claim rental expenses” and “Rental expenses” guidance, updated May 2026.

Two threshold rules govern the whole table. Your property must be held to produce assessable rental income — actually rented, or genuinely available for rent on commercial terms — for the expense period you're claiming. And you must have actually incurred the cost yourself: if the tenant pays the water usage, you don't claim it.

The “never claim” bucket isn't a dead loss, either. Acquisition and disposal costs — transfer stamp duty, conveyancing, buyer's agent fees — go into the property's CGT cost base and reduce your taxable gain when you sell. Our capital gains tax guide walks through how the cost base is built.

For quick reference, here's how the most-asked-about rental property expenses land:

Source: ATO rental expenses guidance, May 2026. Assumes the property is rented or genuinely available for rent; apportion for any private use.

Immediate Deductions: The Full List

Here is the current ATO list of expenses you can claim in the year you incur them, provided the property is rented or genuinely available for rent:

• Interest on your investment loan (covered in depth in the next section)
• Council rates, water charges and land tax
• Emergency services levies
• Insurance — building, contents, public liability and loss-of-rent (landlord) cover
• Property agent fees and commission, including ongoing management fees
• Advertising for tenants — fully deductible with no apportionment even if the property was only rented part of the year, because the cost relates solely to producing rent
• Body corporate administrative fund and general sinking fund contributions (with a capital-works exception below)
• Cleaning, gardening and lawn mowing
• Pest control
• Repairs and maintenance (with the capital-works boundary covered later)
• Legal expenses of managing the tenancy — evicting a non-paying tenant, court action to recover lost rent, defending a damages claim from an injury on the property
• Pre-paid expenses under $1,000, or larger prepayments whose service period runs 12 months or less and ends within the next income year

A few of these carry fine print worth knowing:

Land tax is claimed in the year the liability relates to, not the year you pay it. If your state issues an assessment covering arrears from earlier years, you amend the earlier returns rather than lumping it into this one — an odd rule that catches investors in Victoria and NSW where reassessments are common. There's also a helpful quirk: land tax doesn't need to be apportioned in the year you move into the property or sell it.

Body corporate fees split by fund. Regular contributions to the administrative fund and general-purpose sinking fund are deductible when incurred. A special levy struck to fund a specific capital improvement is not — it's claimable at 2.5% per year as capital works once the work is done.

Prepayments are the main legitimate timing lever left. Prepaying next year's insurance premium, or up to 12 months of interest on a fixed loan, brings the deduction into the current year under the 12-month rule. It's a deferral, not a saving, and it makes the most sense when this year's marginal rate is higher than next year's is likely to be.

Interest: The Biggest Deduction and the Most-Audited One

For a typical geared investor, loan interest is 50–70% of total claims, which is exactly why the ATO's data-matching program focuses on it. The rules reduce to one principle: purpose, not security. Interest follows what the borrowed dollars were spent on.

What you can claim

Interest on borrowings used to:

• buy the rental property
• buy depreciating assets for it (an air conditioner, appliances)
• pay for deductible expenses such as repairs arising from renting it out
• finance renovations and extensions to the rental property

You can also claim pre-paid interest up to 12 months ahead, and interest during periods the property is uninhabitable while tenant damage is repaired. Interest on money borrowed to pay deductible property expenses — land tax, council rates, repairs — is itself deductible, because the borrowing's purpose is the income-producing property.

One timing rule catches builders of new rentals: if you're constructing a dwelling on vacant land, the vacant land rules generally deny individuals a deduction for holding costs — including interest and rates — until the dwelling is complete, can be lawfully occupied, and is rented or genuinely available for rent (see TR 2023/3). Those denied costs aren't wasted; they typically join the CGT cost base. The old position that construction-phase interest was claimable while you intended to rent the finished dwelling largely ended for individuals with the 1 July 2019 vacant land changes, and plenty of dated internet advice hasn't caught up.

What you can't claim

• Interest for any period you used the property privately
• Interest on the portion of a loan used for private purposes, whether that happened at drawdown or at refinance
• Interest on a loan used to buy your own home, even if the loan is secured against your rental property
• Additional repayments of principal (never deductible — only the interest charge is)

The security point trips up more investors than any other. The ATO's guidance gives the example of a couple who borrow $400,000 secured against their existing home to buy a new home to live in, while renting the old one out. The interest on the $400,000 is not deductible — the money bought a private residence — while the interest on the old home's remaining $25,000 mortgage is, because that borrowing funded what is now the rental. The collateral is irrelevant; the use is everything.

Mixed loans and the contamination problem

Borrow $400,000, put $380,000 toward the rental and $20,000 toward a car, and your loan is 95% deductible — forever. The ATO's worked example (Yoko, in its current guidance) is blunt about the consequence: on $35,000 of annual interest, $33,250 is claimable, and every repayment you ever make is apportioned 95/5 across both purposes. You cannot direct repayments at the private slice to clean the loan up faster; TR 2000/2 sets out the apportionment maths for line-of-credit and redraw facilities.

Redraws work the same way and are the ATO's stated focus area. Redraw $9,500 from your investment loan for a TV and lounge suite, and from that day the loan is split (97.4% deductible, 2.6% private, in the ATO's example) and stays split for the life of the loan. A redraw is new borrowing, and its purpose is whatever you spent it on.

Two related structures the guidance blesses, which are worth knowing before you settle your next purchase:

• Deposit funded by redraw, refinanced at settlement. Borrowing your deposit by redrawing on your home loan, then repaying that redraw from the investment loan at settlement, preserves deductibility — refinanced borrowing takes on the character of what it replaced, and the original redraw funded the rental deposit.
• Deposit funded from savings or a gift, with surplus loan money left over. If part of the investment loan ends up parked in savings for private use, interest on that portion is not deductible. Same dollars, different history, opposite outcome.

The offset-versus-redraw distinction is the practical defence, and it's worth being precise about because they feel identical and are taxed opposite ways:

Source: ATO interest expense guidance and TR 2000/2.

Refinancing follows the same purpose logic. Swapping lenders or rates on the same debt doesn't reset or endanger deductibility — the new loan inherits the character of the debt it replaces. What changes the analysis is cash-out refinancing: any extra borrowed above the old balance is new borrowing, deductible only if the extra funds go to the rental (or another income-producing use). Refinance a $400,000 investment loan to $450,000 and spend the $50,000 on a family holiday, and you've built a 89/11 mixed loan with the same permanent contamination as a private redraw.

Co-owners

Joint tenants split interest (and all income and expenses) by legal interest — 50/50 for a typical couple, per the ATO's example of joint borrowers claiming $15,000 each on $30,000 of interest; tenants in common split by the percentages on the title. TR 2026/1 confirms the legal title governs except in very limited circumstances where evidence establishes a different equitable interest, and adds one useful carve-out: interest on money borrowed by only one co-owner, used exclusively to acquire that person's own share of the property, belongs to that borrower alone and doesn't get divided. The other narrow exception: where a lender requires a spouse as co-borrower but the property is legally owned by one person who genuinely bears all repayments (documented, and paid from their own account), the sole owner declares all the income and claims all the interest. Ownership structure is a settlement-day decision with a 30-year tail; our trust versus personal name guide covers the options.

Repairs, Maintenance and the Capital Works Boundary

This boundary is where the most money moves between “deduct this year” and “deduct over 40 years”, and the ATO's guidance draws it with four tests. The pattern in practice:

Source: ATO repair and maintenance / capital expenses guidance, May 2026.

Deductible repair: remedies defects, damage or deterioration that occurred while you were renting the property out, and restores the item without changing its character. Replacing a cracked pane of glass, part of a gutter, part of a fence, or fixing an appliance all qualify.

Deductible maintenance: work that prevents or fixes deterioration to keep the property tenantable — repainting faded or damaged walls, oiling a deck, cleaning the pool, maintaining plumbing.

Improvement (capital works): anything that makes the item better, more valuable or more desirable, or changes its character. The ATO's example is a landlord who replaced a damaged fibro wall with a brick feature wall: capital works, because the work went beyond restoring function. Had he replaced fibro with plasterboard — the modern equivalent material — it would have been a repair. Renovations, remodelled bathrooms and pergolas all live on this side of the line.

Initial repairs (capital): fixing damage, defects or deterioration that existed when you bought the property is capital, even if you didn't know about it at purchase. The ATO's worked example prices this trap: a buyer who repaired a ceiling ($2,000), replaced a roof ($9,000) and fixed structural damage ($15,000) discovered at settlement claims none of it immediately — all $26,000 is capital works at 2.5% per year, with the unclaimed balance feeding the CGT cost base at sale.

Two more edges of the boundary:

• Replacing an “entirety” is capital. Fix part of a toilet and it's a repair; replace the whole toilet and you've replaced a separately identifiable unit of property — capital works. Same for a complete kitchen replacement, though there the construction cost is capital works while any brand-new appliances are claimed as depreciation.
• Your own labour is worth nothing at tax time. DIY landlords claim materials only. Repaint the walls yourself and the paint is deductible; your weekend is not.

Capital works: the 2.5% workhorse

Construction costs, structural improvements, alterations and extensions are claimed at 2.5% per year over 40 years (4% over 25 years for a narrow class of buildings) once construction is complete, for residential buildings built after 17 July 1985. Fences, driveways, retaining walls, garages, carports and preliminary costs like architect and engineering fees and building permits all count. The deduction can't exceed actual construction cost, and it needs the property to be rented or available to rent.

Worth restating in a falling-completions market: on a new build with $350,000 of construction cost, capital works alone is $8,750 a year for four decades. It's the quiet reason new builds dominate post-reform acquisition strategies even before the negative gearing carve-out is priced in.

Depreciation: The $300 Rule, the Set Trap and the Second-Hand Ban

Depreciating assets are the removable, replaceable items that aren't part of the building's structure — carpets, curtains, appliances, furniture, floating timber floors. The rules:

$300 or less: claim it now. With one trap — the set rule. Four dining chairs at $250 each are a $1,000 set, not four $250 assets, and must be depreciated, not written off.

Over $300: depreciate over effective life. Two methods, your choice per asset:

• Diminishing value: cost × (days held ÷ 365) × (200% ÷ effective life). Front-loads deductions.
• Prime cost: cost × (days held ÷ 365) × (100% ÷ effective life). Straight line.

The ATO's example: a $1,500 outdoor table with a five-year life returns $600 in year one under diminishing value, or $300 under prime cost. Most investors take diminishing value for the earlier cash; prime cost suits those expecting higher income (and marginal rates) later.

Under $1,000: pool it. Assets below $1,000 can be grouped in a low-value pool and depreciated together at pool rates — less paperwork, accelerated write-off.

The second-hand ban. Since 9 May 2017, you generally can't claim decline in value on second-hand depreciating assets in residential property. Buy an established house and the existing carpet, blinds and dishwasher carry no depreciation deductions for you. The exceptions run through new property: you can claim assets that came with a newly built or substantially renovated property if no one previously claimed them and either no one lived there before you bought, or you acquired the property within six months of completion. Buy that same new apartment seven months after completion, and the installed assets stop being claimable — the six-month line is hard.

Brand-new assets you buy and install yourself remain fully claimable in any property, which is why replacing a dead appliance in an established rental still generates a deduction while the one it replaced never did.

Borrowing Expenses: The Five-Year Spread

Everything you pay to get the loan (as opposed to interest, which you pay to keep it) is a borrowing expense:

Claimable over 5 years: loan establishment fees; lender's mortgage insurance (the single biggest one for high-LVR buyers); title search fees charged by your lender; preparation and filing of mortgage documents, including the solicitor's charge for it; mortgage broker fees; valuation fees required for loan approval; stamp duty on the mortgage.

Not borrowing expenses: the borrowed amount itself, principal repayments, interest (claimed separately), loan-protection insurance premiums, and — the perennial confusion — stamp duty on the property transfer plus conveyancing fees for the purchase, which are capital costs that reduce your eventual capital gain instead.

The mechanics: claims are apportioned by days in year one, and borrowing costs on any private-purpose slice of the loan are excluded using the same purpose ratio as interest. The ATO's example investor with $1,600 of borrowing costs on a loan taken out 3 July claims $318.07 in year one, then a recalculated slice each year until the balance rounds out in year six. Repay or refinance the loan early and the unclaimed balance is deductible in full in that final year — a detail refinancers routinely miss in the year they switch lenders.

What You Can Never Claim

The blacklist, consolidated from the ATO's current guidance:

• Travel. Since 1 July 2017, individual investors can't claim any travel to inspect, maintain or collect rent from a residential rental — car, flights, taxis, accommodation, meals, all of it. The carve-outs (corporate tax entities, and taxpayers genuinely in the business of letting) don't reach ordinary investors: the ATO's position is that owning one or several rentals is investment, not a letting business. Pre-purchase inspection travel and property-seminar travel were never claimable for anyone.
• Second-hand depreciating assets (post-9 May 2017 purchases, per the previous section).
• Acquisition and disposal costs. Purchase price, transfer stamp duty, conveyancing, advertising at purchase or sale. Cost base, not deduction.
• Expenses you didn't pay — anything covered by the tenant.
• Your own labour on repairs, maintenance or renovation.
• Vacant land holding costs, under rules that deny deductions until a dwelling exists and can be lawfully occupied and is genuinely available for rent.
• GST credits — residential rent is input-taxed, so there are no GST credits; you claim the GST-inclusive amount as your deduction instead.
• Loan-protection insurance that pays out your loan on death, disability or unemployment (private in nature).
• Special body corporate levies for capital improvements (capital works once complete).
• Anything attributable to private use periods — which brings us to apportionment.

Apportionment: Where TR 2026/1 Points the Audit Torch

Full-year, arm's-length, wholly-rented properties can skip this section. Everyone else — and the growth of room-by-room letting, midterm rentals and family arrangements means that's a lot of investors — is in the ATO's newest compliance documents.

Time-based apportionment applies when the property produced income for part of the year: (days used or genuinely available for rent ÷ days owned in the year) × expenses. The phrase doing the work is genuinely available on commercial terms. A property “listed” at an unrealistic rent, or blocked out for your own summer use, doesn't accumulate deductible days. And if you rent out a room in your own home, the ATO's view is that unoccupied days count for nothing — the room reverts to private use between guests, so only actual rented days count.

Area-based apportionment applies when part of the property is rented: (tenant's exclusive floor area + half the shared common areas) ÷ total floor area. The methods stack: the ATO's example of a spare-room host who rented 10 of 80 square metres (plus shared areas) for 100 days lands on 43.75% × 27.4% = 11.99% of annual property costs being deductible — plus 100% of the platform commission, which relates solely to the letting.

Expenses that relate solely to renting never need apportioning — advertising, agent commission, platform fees, repairs attributable to tenant damage — even in a heavily mixed-use year.

Renting to family below market rate caps your deductions at the rent received — no losses, no negative gearing, by design. Rent to your mother at a discount and receive $15,600 while incurring $20,578 of costs, and your deduction is $15,600, full stop. TR 2026/1 (Example 6) frames the principle directly: charging a relative below market rent means you're using the property partly to produce income and partly to help with their accommodation, so deductions must be apportioned to reflect that private purpose — while the discounted rent you receive is still fully assessable. Renting to family at market rate keeps full deductibility, but the evidence burden is yours: a rent appraisal or comparable listings from the time the rent was set.

Board and shared-household money isn't rent at all. TR 2026/1 also draws the other boundary: amounts that genuinely cover a family member's share of household costs are not assessable income, and support no deductions. The ruling's examples put numbers on it — an adult child paying $200 a week board covering their share of food and utilities creates no rental income; a homestay student's $80 weekly contribution to household costs is not assessable, but if the payment is $400 with a $320 rent component, that $320 is rental income (with apportioned deductions available). If you've been declaring board from a relative and claiming a slice of your home loan against it, this ruling is the reason to revisit that with your accountant in both directions.

Holiday homes: the new section 26-50 regime

The biggest structural change in TR 2026/1 is holiday homes. The ATO's position is now that a holiday home — a property used, or held for use, for your holidays or recreation (or your family's or friends', rent-free or at mates' rates) — is a “leisure facility” under section 26-50, and deductions for owning, using, maintaining or repairing it are denied entirely unless an exception applies. Denied means denied: interest, rates, land tax, repairs — all of it. The main exception is where, at all times, the property is used or held mainly to produce rental income; costs that relate solely to the letting itself (platform commission, advertising, post-guest cleaning) stay deductible either way, and denied ownership costs can generally still feed the CGT cost base.

Two features of the “mainly” test deserve attention, because they're stricter than the folk wisdom:

• It's qualitative, not a day count. The ruling says outright that advertising the property for most of the year is not enough on its own. The give-away factor is peak season: a coastal house advertised year-round but blocked out for the owner's use every Christmas, Easter and school holidays fails the test — the ATO's examples (Carla's Whitsundays beach house rented five days a year; a family beach house blocked for school holidays and rented 10–14 days) both lose every ownership deduction, while keeping the rent assessable.
• Genuine investors are untouched, and minor use is tolerated. A property never reserved for private use isn't a holiday home at all (the ruling's Gold Coast example), and an owner who takes one or two off-peak nights a year while otherwise maximising occupancy still passes, with a small apportionment for the nights used. A definite and sustained change of use part-way through a year — for example, moving overseas and opening the calendar fully — restores deductibility from that point.

For the return you're lodging now, remember the transitional approach: the ATO won't apply section 26-50 compliance review to expenses incurred before 1 July 2026. Treat FY2025–26 as your last return under the old holiday-home analysis, and this year (FY2026–27, already underway) as the first one where the blocked-out-Christmas pattern costs you every ownership deduction. There's also an anti-avoidance rule (subsection 26-50(7)) aimed at schemes engineered to dress a holiday home up as a “mainly rental” property, so restructuring the paperwork without changing the actual pattern of use won't work.

Negative Gearing in FY2025–26 — and the 1 July 2027 Split

If your deductible expenses exceed your rental income, the property is negatively geared and — for FY2025–26 — the loss reduces your salary, wage or business income as it always has. If your other income can't absorb the loss, it carries forward. Positively geared investors simply pay tax on the net rent. That much is unchanged, and it stays unchanged for the FY2026–27 return too.

The reform, legislated in June 2026 following the May Budget, splits investors into three cohorts from 1 July 2027. Treasury's factsheet sets out the transition precisely:

Source: Australian Government, Budget 2026–27 factsheet “Negative Gearing and Capital Gains Tax Reform”.

Quarantined losses aren't lost. From 1 July 2027, affected losses deduct against other residential property income, including capital gains, and carry forward indefinitely. Treasury's own cameo shows the long-run cost can be modest for a hold-to-positive-gearing investor — its worked example nets out at $186 of extra tax over a ten-year hold — but the cash-flow timing changes completely: the annual tax refund that subsidised holding costs disappears in the loss-making years and returns as an offset only when the property (or another one you own) turns a profit or is sold.

Three design details worth knowing before your next purchase:

• “New build” is defined by supply, not by smell of paint. Dwellings built on vacant land, or replacing demolished stock with more dwellings, qualify. A knock-down rebuild replacing one house with one house doesn't. And the concession belongs to the first owner: buy a “new” property that someone occupied for over 12 months and the new-build benefits don't transfer to you.
• The CGT side arrives at the same time. For gains accruing after 1 July 2027, the 50% discount gives way to CPI cost-base indexation plus a 30% minimum tax rate on real gains. Gains accrued up to 1 July 2027 keep the 50% discount, using the asset's value at that date — which makes establishing that value (formal valuation or the ATO's apportionment formula) a job for every investor's 2027–28 file. The full mechanics, including who wins and loses at different return rates, are in our CGT guide.
• Structures are treated differently. The loss-quarantining applies to individuals, partnerships, companies and most trusts. Superannuation funds, including SMSFs, and widely held trusts are excluded — one more variable in the ownership structure decision, not a loophole, given super's own contribution and borrowing constraints.

Records, Deadlines and Lodging

Deadlines. Self-lodgers: 31 October 2026 for the FY2025–26 return. Using a registered tax agent generally extends lodgment well into 2027, but only if you've engaged them before 31 October.

Don't forget the income side. Your rental schedule starts with everything the property brought in, not just the weekly rent: bond money you retained for damage or unpaid rent, insurance payouts for lost rent or damage, tenant reimbursements of expenses you claimed, booking cancellation fees, short-stay platform income (gross, before host fees — the fees are then a deduction), and letting or lease-incentive payments. Under-declared income is easier for the ATO to find than over-claimed deductions, because most of it is reported to them by someone else.

The ATO already has most of your numbers. Its data-matching programs ingest loan data from the banks, settlements from state land titles offices and revenue offices, rental bond board lodgments, property manager annual statements, and host income from Airbnb, Stayz and the other platforms under the sharing economy reporting regime. Treat your rental schedule as something the ATO will reconcile against third-party data, not merely review for reasonableness.

Substantiation is the whole game. Under self-assessment, an expense that would have been perfectly deductible is denied if you can't substantiate it when asked. No interest statement, no interest deduction — regardless of what the loan actually cost you.

In myTax, rental deductions go in the rental property section after you declare the income (‘You had Australian interest, or other Australian income or losses from investments or property’), with each expense in its labelled field — which is exactly how the ATO's analytics compare your claims against similar properties.

The records that survive review:

• Loan statements for the full year, with any mixed-purpose portions separately calculated (and the calculation kept)
• Itemised invoices splitting repairs from improvements
• Evidence the property was genuinely available for rent: listings, agent instructions, tenancy applications
• Market-rent evidence for any tenancy with family or friends
• A day-count calendar for any property with private use
• Your quantity surveyor's depreciation schedule
• Body corporate notices distinguishing admin/sinking fund contributions from special levies
• Land tax assessments matched to the year the liability relates to

Keep everything five years from lodgment — and hold some documents much longer. Your settlement statement, purchase contract, renovation and capital works invoices, and quantity surveyor's schedule feed the CGT cost base, so they need to survive until five years after you sell, which may be decades. Digital copies are fine; the ATO accepts scanned and electronic records provided they're complete and legible.

Co-owners: remember every number splits by legal ownership share — you can't direct rental losses to the higher-earning spouse if the title says 50/50.

Frequently Asked Questions

The Bottom Line

The ten mistakes that cost landlords the most, in roughly the order the ATO finds them: private redraws contaminating investment loans; claiming travel; deducting initial repairs; depreciation claims without a schedule (or on second-hand assets); below-market family rent claimed at full deductions; no apportionment for private use; holiday homes blocked out in peak season; special levies claimed immediately; borrowing costs written off in year one; and transfer stamp duty claimed as a deduction. Every one of them is covered above — and every one is checkable against data the ATO already holds.

The FY2025–26 rental schedule rewards the same discipline it always has: sort every expense into now / later / never, keep the loan clean, respect the repairs-versus-capital boundary, and apportion honestly for any private use. What's different this year is the scrutiny — TR 2026/1 and its two companion guidelines have turned the ATO's positions on apportionment and family tenancies into published, legally binding tests your claims will be graded against, and from 1 July 2026 they add an entirely new one: holiday homes with peak-season private use lose their ownership deductions altogether.

And what's different from here is the horizon. This return and the next are the final two lodged under uniform negative gearing. From 1 July 2027 your purchase dates start doing the work: pre-Budget properties keep their treatment until sold, post-Budget established purchases move to quarantined losses, and new builds become the only fully geared game in town. Claim this year completely and correctly — then make sure your next acquisition is modelled under the rules it will actually live under.

Sources

• ATO, Rental expenses guidance suite — How to claim rental expenses; Common property expenses; Interest expenses; Repair and maintenance expenses; Capital expenses; Borrowing expenses; Depreciating assets in rental properties; Rental properties and travel expenses (all pages last updated 21–22 May 2026)
• ATO, TR 2026/1 Income tax: rental property income and deductions for individuals who are not in business (legally binding public ruling, issued 20 May 2026; replaces IT 2167), ATO Legal Database; PCG 2026/2 Apportionment of rental property deductions — ATO compliance approach; PCG 2026/3 Application of section 26-50 of the ITAA 1997 to holiday homes that you also rent out — ATO compliance approach
• ATO, TR 2000/2 Deductibility of interest on moneys drawn down under line of credit facilities and redraw facilities
• Australian Government, Budget 2026–27, Negative Gearing and Capital Gains Tax Reform factsheet (budget.gov.au)