What’s Changed This Year?
- The ATO’s Rental Properties Guide 2025, published in May 2025, lays out updated rules on declaring rental income, deductible expenses, depreciation treatment, recordkeeping, and capital works. It’s a key reference for staying compliant in 2025.
- The ATO is ramping up data-matching efforts, pulling information from rental bond registries to identify unreported income or overclaimed deductions. Roughly 9 in 10 property owners have errors on their returns. And separately, that’s why we recommend audit insurance for clients who own rental properties – audit insurance pays for any accounting and legal fees to attend to an ATO audit on your behalf.
1. Interest Deductions: Only the Rental Portion Counts
- Claim only the interest portion of loans used exclusively for investment purposes. For example, suppose you borrow money from a bank secured against your investment property, and then use that money for personal use (e.g. a family holiday). The interest on that portion of the loan will not be deductible (even though the loan is secured against a rental property). If this point is not clear, please ask your tax accountant Melbourne for a further explanation.
2. Repairs vs Improvements: Know the Difference
- Repairs and maintenance (e.g., fixing a leaking tap, repainting worn areas) are immediately deductible.
- Capital improvements (like replacing an entire kitchen or adding rooms) aren’t deductible in full—they must be capitalised and depreciated over time. Note that if you improve a property (compared to the time that you originally purchased it), then it is likely that those items will be treated as capital improvements and need to be depreciated (instead of being immediately deductible). For example, suppose you purchase a run down property and decide to spend $20k improving the property for it to be ready for rental. The $20k is likely to be treated as a capital improvement and not immediately deductible. Again, best to contact a business accountant with any questions.
3. Depreciation
- You can depreciate the building (not the land) over its useful life—usually 40 years for residential property under the capital works regime. Commercial properties have a different depreciation regime. Best to use a quantity surveyor to prepare a depreciation report to assist with your claim – your business accountant will have a list of quantity surveyors they work with.
4. Other Common Deductible Expenses
From council rates to pest control, insurance to property management, these are generally deductible—but only if you can prove they directly relate to rental activity. Keep invoices, bank records, and correspondence.
5. Recordkeeping
Organise:
- Receipts and invoices
- Loan documentation and interest statements
- Depreciation schedules
- Rental bond records (since the ATO is matching against them)
- Income records (rental statements etc.)
These support every claim and help in the event of an ATO audit.
6. Avoid Costly Mistakes
- Don’t skip declaring short-term rental income, like from Airbnb.
- Never claim personal expenses or travel unrelated to property management. If you stay in an Airbnb property for some of the time, then an apportionment of rental expenses is required. Please contact a tax accountant Melbourne, such as Nobel Thomas, with any questions.
