Introduction

In 2026, the ATO is no longer relying on what you report. It is actively checking it.

With expanded data matching across rental bond authorities, property managers, and short term platforms like Airbnb and Stayz, property investors are under closer scrutiny than ever. Many investors are not audited because they intentionally do the wrong thing, but because they misunderstand what needs to be declared and what can actually be claimed.

The rules have also become more complex. Draft guidance such as TR 2025/D1 signals how the ATO is tightening its position on private use, holiday homes, and lifestyle properties. At the same time, common mistakes around loan interest, repairs, and depreciation continue to trigger adjustments and penalties.

This guide breaks down the key areas of your rental property tax return based on the ATO’s Rental Property Statement. It will help you understand what must be declared as income, what you can legitimately claim as deductions, and where investors most commonly get it wrong.

I. What You Must Declare (Assessable Income)

One of the most common mistakes investors make is declaring only the net rent they receive. The ATO requires you to declare gross income before any fees or deductions.

Gross Rent
You must include every dollar paid by a tenant or guest. This includes weekly rent, short term accommodation income, and any cleaning or service fees charged through platforms like Airbnb or Stayz.
Example: If your agent deducts $3,000 in fees and sends you $27,000, you must still declare $30,000.

Bond Money Retained
If you keep part or all of a tenant’s bond to cover unpaid rent or damage, that amount is treated as income.

Insurance Payouts
If you receive insurance for loss of rent, it must be declared as income. Payments for property damage are treated differently and may fall under capital gains rules.

Reimbursements
If a tenant reimburses you for a cost you have already claimed as a deduction, such as a repair or water bill, that reimbursement must be declared as income.

Discounted Rent to Family or Friends
You must still declare the income received. If the rent is below market value, your deductions may be limited to the amount of income earned.

II. Expense Details: Maximising Your Deductions

The Green Zone (Immediate Deductions)

These are expenses you can generally claim in full in the same financial year.

Advertising and Commissions
You can claim agent fees, platform commissions, and listing costs.
You cannot claim the value of your own time managing the property.

Repairs
Repairs relate to fixing something that is broken or damaged.
Examples include repairing a leaking tap, replacing a broken window, or fixing storm damage.

What you cannot claim here are initial repairs. If the damage existed when you purchased the property, the cost is considered capital in nature.

A simple rule: if the work improves or replaces the whole asset rather than fixing damage, it is likely capital.

Operational Costs
Cleaning, gardening, and pest control costs are deductible when incurred during rental periods.

The Amber Zone (Holding Costs and Apportionment)

These expenses are often deductible, but may need to be apportioned.

Interest on Loans
You can claim interest on the portion of the loan used for the investment property.
You cannot claim interest on funds used for personal purposes such as holidays, cars, or private expenses.

Example: If you redraw from your mortgage for personal use, you must separate and exclude that portion of interest.

Rates and Taxes
Council rates, water rates, and land tax are generally deductible.
You cannot claim water usage charges that are paid directly by the tenant.

Insurance
Landlord, building, and contents insurance are deductible.
Personal insurance such as life, trauma, or income protection is not.

Apportionment Rules
If the property is used privately or is not genuinely available for rent, expenses must be apportioned.
This includes:

• Private stays by the owner
• Periods where the property is not actively listed for rent
• Renting below market value

III. Claiming Over Time

Not all expenses can be claimed immediately. Some must be claimed over several years.

Building Write Off (Capital Works)
Most residential properties allow a deduction of 2.5 percent per year over 40 years.
Eligible build to rent developments may qualify for an accelerated 4 percent rate.

Depreciation (Plant and Equipment)
Assets such as appliances, carpets, blinds, air conditioning units, and hot water systems are depreciated over their effective life.
This is a key area many investors miss or underclaim.

Renovations
Major upgrades such as new kitchens, bathrooms, or extensions are capital works and must be depreciated over time.
They should not be claimed as repairs.

Instant Asset Write Off
This may apply only if you are genuinely carrying on a rental property business, which is uncommon and depends on your circumstances.
Most individual investors will not qualify and will instead claim depreciation over time.

IV. The Absolute No List (Common Audit Triggers)

Travel Expenses
Travel costs related to inspecting or maintaining a residential rental property are not deductible. This includes flights, fuel, and accommodation.

Borrowing Costs Over $100
Expenses such as loan establishment fees and lender’s mortgage insurance must be spread over five years.

The Leisure Facility Risk (TR 2025/D1)
If you use a holiday home privately during peak periods such as Christmas or Easter, the ATO may classify it as a lifestyle asset.

The consequence can be severe. The ATO may deny key deductions such as interest, rates, and land tax for the entire year.

Keeping accurate records of private use is essential.

Investor Action Checklist for 2026

• Declare gross income, not net amounts received
• Review loan redraws and separate personal use
• Ensure ownership percentages match your tax return
• Keep a clear record of any private use
• Confirm your depreciation schedule is up to date

Final Word

Property investment offers strong tax advantages, but only when structured and reported correctly. Most costly mistakes are not aggressive claims, but simple misunderstandings that compound over time.

Getting it right can mean the difference between maximising your return and triggering an ATO review.

Need Help Getting This Right?

If you are not completely confident your property is structured correctly or you are claiming everything you are entitled to, it is worth reviewing before you lodge.

At Simply Wealth, we help property investors:

• maximise deductions correctly
• structure loans and ownership properly
• avoid common ATO audit triggers

Speak with our team today.

Call 1300 074 675
WhatsApp 0482 088 637
Email marketing@simplywealthgroup.com.au