What the ATO allows straight away
The ATO says these can generally be claimed in the income year you incur them, while the property is rented or held for rent on commercial terms:
- advertising for tenants
- body corporate administration fund fees and charges
- council rates and water charges
- land tax
- cleaning, gardening and lawn mowing, and pest control
- insurance (building, contents, public liability, loss of rent)
- interest on the loan for the property
- property agent fees and commission
- repairs and maintenance
- legal expenses that are not part of buying or selling
The property must be rented or held to produce income on commercial terms. The ATO looks at whether it is advertised broadly, whether the rent is similar to comparable properties, and whether enquiries are actively followed up.
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What is claimed over several years
- Capital works. The building and structural improvements are generally deducted at 2.5% a year over 40 years, or 4% over 25 years for some build-to-rent projects. The ATO says the property must have been built after 17 July 1985 and construction must be complete.
- Borrowing expenses. Where they total more than $100, they are spread over 5 years or the loan term, whichever is shorter.
- Initial repairs. Fixing damage that existed when you bought the property is treated as capital, not as a repair.
- New depreciating assets. The decline in value of new assets can be claimed. Items costing $300 or less can be claimed immediately.
What the ATO rules out
- Travel. From 1 July 2017 no deduction for travel costs relating to a residential rental property, with two exceptions: carrying on a business of letting rental properties (owning one or several properties typically does not qualify) and excluded entities, a group the ATO describes as including corporate tax entities, public unit trusts and managed investment trusts. The ATO also says travel to inspect a property before you buy it is not deductible.
- Second-hand depreciating assets. In most cases you cannot claim a deduction for the decline in value of second-hand assets after 1 July 2017.
- Vacant land. Holding costs are generally not deductible unless an exception applies, such as an excluded entity or a business use.
- Buying and selling costs. The purchase price, conveyancing and stamp duty on the purchase are not rental deductions. The ATO treats legal expenses for buying or selling as capital costs included in the cost base.
- Improvements. Replacing a whole structure, renovations and extensions are capital, as opposed to repairs that restore working order.
- Private use. No deduction for any period the property is used privately, even a short one, and no claim for expenses you do not bear, such as tenants' water or electricity usage.
- Your own labour. On repairs, only the materials are claimable, not your own work.
Interest on the loan
The ATO says interest is deductible where the loan funded the rental property and the property is rented or held to produce income. If a loan has both rental and private purposes, you must apportion interest, using total interest x (rental loan / total borrowings). If you redraw funds for private use, the ATO says the deductible and private ratio has to be kept across the loan's life.
Worked example: losses and what a deduction is worth
A foreign resident owns a rented apartment and has no other Australian income.
| Item | Amount |
|---|---|
| Rent received | $32,000 |
| Loan interest | $16,000 |
| Agent fees | $2,560 |
| Council rates | $2,100 |
| Water charges | $900 |
| Insurance | $1,500 |
| Repairs | $1,640 |
| Capital works (2.5% x $120,000 construction cost) | $3,000 |
| Total deductions | $27,700 |
| Net rental income | $4,300 |
Check: $16,000 + $2,560 + $2,100 + $900 + $1,500 + $1,640 + $3,000 = $27,700. Net income is $32,000 - $27,700 = $4,300, taxed at 30% under the foreign resident scale: 30% x $4,300 = $1,290.
Without the capital works claim, net income would be $7,300 and tax $2,190. The $3,000 deduction therefore saves $900, which is 30% of $3,000. Within the first bracket a foreign resident's deduction is worth 30c in the dollar.
If the deductions had been $35,000, the result would be a net rental loss of $3,000. The ATO says a loss may reduce your other assessable income, and where your other income cannot absorb it, you can carry it forward to the next income year. A foreign resident declares Australian-sourced income, so the income that can absorb a loss is other Australian-sourced income. See the rental income guide and the rates guide.
Records
The ATO says to keep rental records for 5 years, which in the usual case runs from the date you lodge the return. Records must be in English or readily translatable into English, on paper or digitally, and copies must be true and clear. For the later sale, keep the contract of sale, conveyancing documents and the capital gain calculation.
Keep reading
- Tax on rental income for non-resident landlords: how the ATO treats rent from Australia
- Foreign resident tax rates for 2026-27: what the ATO charges non-residents
- Buying an investment property in Australia from overseas: citizens abroad and foreign buyers
- Main residence exemption for expats and foreign residents: what the ATO rules say
- Australian tax residency tests explained: are you a resident or a foreign resident?
- Do Australian expats pay the foreign buyer stamp duty and land tax surcharges?
Frequently asked questions
Can I claim the flight to inspect my Australian rental property?
No. The ATO says that from 1 July 2017 travel costs for a residential rental property are not deductible unless you carry on a business of letting rental properties or are an excluded entity. The ATO also says owning one or several properties typically does not make you a business.
Can a foreign resident negatively gear?
The ATO describes negative gearing as borrowing to buy a rental property where deductible expenses, including interest, exceed the rent, so the loss may reduce your other assessable income. That rule is not limited to residents. The difference for a foreign resident is that only other Australian-sourced income is there to absorb it, and unused losses carry forward.
Are property manager fees deductible?
Yes. The ATO lists property agent fees and commission among the expenses claimable in the year they are incurred, along with advertising for tenants and body corporate administration fees. Fees for a buyer's agent you engage to find a rental property are different: the ATO treats those as non-deductible acquisition costs.
Can I claim depreciation on furniture and appliances?
New assets can be depreciated, and items costing $300 or less can be claimed immediately. In most cases the ATO does not allow deductions for second-hand depreciating assets after 1 July 2017. Capital works on the building itself, at 2.5% a year for property built after 17 July 1985, are a separate allowance from depreciation of furniture and appliances.
Sources
- Rental expenses, Australian Taxation Office
- Common property expenses, Australian Taxation Office
- Rental properties and travel expenses, Australian Taxation Office
- Depreciating assets in rental properties, Australian Taxation Office
- Capital expenses, Australian Taxation Office
- Repair and maintenance expenses, Australian Taxation Office
- Interest expenses, Australian Taxation Office
- Deductions for a rental property that isn't a holiday home, Australian Taxation Office
- Records for rental properties and holiday homes, Australian Taxation Office
- Rental properties guide 2026: other tax considerations, Australian Taxation Office
- Rental properties guide 2026 (NAT 1729), Australian Taxation Office
Checked 7 October 2026.
Expat Finance is an independent guide. It is not a lender, mortgage broker or credit provider, it does not hold an Australian credit licence, and it does not give credit, legal, tax or migration advice. It is not affiliated with any bank, the ATO or the Foreign Investment Review Board. General information only, not legal, tax, migration or financial advice.