The ATO Focus on Investment Property Tax Deductions

investment property tax deductions

Be warned property investors - as the tax office is keeping a close eye on real estate claims once again.  Make sure you have all your record keeping in order when it comes to declaring rental income and deductions

With more than 2.2 million Australians holding rental property investments, and as much as $50 billion claimed in deductions each year (according to the latest 2018-19 taxation statistics), this area of taxation will be under particular scrutiny in the 2021-22 tax returns.

According to the ATO, they’ll be closely examining these five key areas:

  1. Rental property income (such as undeclared income from renting out rooms or homes on a part-time basis)
  2. Expenses that property investors have incurred in owning their property, including repairs, maintenance & interest payments.
  3. Whether investors are living in their second property for part of the year (such as holiday homes)
  4. That investors are not overclaiming or claiming on items that they are not entitled to.
  5. If any relief (in the form of grants or state government support) was claimed by the investors for the home.

Rental property income

The ATO will be looking for undeclared income from renting out rooms or homes on a part-time basis, or an inconsistency in the rental schedule of the property with the income declared on your return.

You should also be wary of over-claiming when leasing your property to friends or family at below-market rents. You will not be able to claim the interest, as you will only be able to claim up to the rental income you receive.

Residing in the secondary property

Tax returns can become complicated if investors reside in their second property for part of the year (such as in a holiday home). These properties must be made available for rent and on the market prior to claims being made.

You cannot claim expenses for periods in which the property was being used by friends or family. You are only allowed to claim on the parts that are associated with any rent.

Repairs, maintenance & improvements - what can be claimed?

Repairs, maintenance and expenses spent on improvements have different tax treatments when it comes to rental properties.

Examples Of What Can Be Claimed

Repairs & Maintenance (Deductible) Improvements (Depreciation Claimed)
  • painting
  • conditioning gutters
  • maintaining plumbing
  • repairing electrical appliances
  • mending leaks
  • replacing broken parts of fences or broken glass in windows
  • repairing machinery.


Improvements include work that:

  • provides something new – for example, adding a gazebo or carport
  • generally improves the income-producing ability or expected life of the property
  • goes beyond restoring the efficient functioning of the property.

Improvements can be either capital works

  • where it's a structural improvement, or capital
  • allowances where the item is a depreciable asset.

It's important to correctly categorise each expense incurred, to ensure it's treated correctly for tax purposes.

Keep accurate records

As the ATO steps up its auditing capabilities each year, you want to be sure that your records are accurate and match what you are looking to claim. If the ATO calls to ask a question about your claim, they already know the answer.

Avoid making common mistakes as a landlord regarding property-related claims and deductions on your return.

Get Expert Help

Investment properties are our area of specialty, as we also have some, so we have an indepth knowledge of the many aspects that the ATO will be on the look out for.

Get in touch if you’d like our help with maximising your deduction claims whilst remaining fully compliant, this tax return season.

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