Updated 26 September 2026. These tips apply to your 2025-26 return, for the year that ended 30 June 2026. Since this post first ran, the budget’s negative gearing and CGT changes have become law (Act No. 49 of 2026). They still start on 1 July 2027. The ATO has also finalised its holiday home ruling as TR 2026/1. And for 2026-27 income, the bottom tax rate drops from 16% to 15%.
The 2025-26 financial year is done. Next comes lodging your investment property return and claiming every deduction you’re entitled to. That’s the part that sets your tax bill, and a rushed return can leave thousands behind or draw ATO attention.
This year has added complexity. The RBA has delivered back-to-back rate hikes, lifting the cash rate to 4.35% in May. That pushed holding costs higher. The federal budget on 12 May announced major changes to negative gearing and the CGT discount. Neither starts until 1 July 2027. And the ATO’s property management data matching now runs right through the 2025-26 year.
The deductions you should be claiming
Check your records against each of these before you lodge.
Interest on your investment loan
This is typically your largest deduction. You can claim interest on a loan used to buy the rental property, or to repair or renovate it. New variable investor loans averaged 6.4% in July 2026 (RBA table F6). That makes interest a big share of your repayments.
Important: Only the interest portion relating to the investment property is deductible. Say you’ve drawn down on your loan for personal purposes, like a holiday, a car or renovations on your own home. You must then apportion the interest between investment and personal use. The ATO estimates interest errors make up 42% of the $1.2 billion tax gap on rental properties.
Depreciation
There are two types:
Division 40 (plant and equipment). Items like carpets, blinds, hot water systems, air conditioners, ovens, and dishwashers. These are depreciated over their effective life. Under the ATO’s rental property items list, carpet has an effective life of 8 years and a split-system air conditioner 10.
Division 43 (capital works). The building structure itself. If construction started after 15 September 1987, you can claim 2.5% of the original construction cost per year for 40 years. On a property with $300,000 in construction costs, that’s $7,500 per year.
The 2017 change: If you purchased a second-hand property after 7:30pm on 9 May 2017, you can no longer claim depreciation on existing plant and equipment assets (Division 40). You can only claim on new items you install yourself. Division 43 (capital works) deductions still apply regardless of when you bought.
If you don’t have a depreciation schedule, get one. A quantity surveyor can prepare it. The ATO lists quantity surveyor’s fees as a deductible rental expense.
Repairs and maintenance
You can claim an immediate deduction for repairs that restore something to its original condition. Fixing a leaking tap, patching a hole in the wall or repairing broken blinds are all immediately deductible.
The trap: If you’re improving the property rather than repairing it, the cost becomes a capital improvement and must be claimed over time (Division 43). Fixing a dishwasher is a repair you can claim straight away, but buying a new dishwasher is not. Ripping out an old kitchen and putting in a new one is an improvement. The ATO says mixing up repairs and capital expenses is the most common mistake rental owners make.
Property management fees
If you use a property manager, their fees and commission are fully deductible. This includes management fees, letting fees for finding new tenants, and advertising costs for tenant searches.
Insurance
Building, contents, loss of rent and public liability insurance on the rental are all deductible.
Council rates, water rates, and body corporate
Council rates, water charges and regular body corporate levies are deductible. A special levy that funds a capital improvement is not. You may claim it as capital works once the work is done. Keep your receipts or statements.
Travel to your property
Important: travel to inspect a residential rental property is no longer deductible for individual investors. This changed on 1 July 2017. You cannot claim flights, accommodation, car expenses, or meals to inspect, maintain or collect rent. The exceptions are if you’re in the business of letting rental properties, or what the ATO calls an excluded entity.
For interstate investment properties, your property manager handles inspections on your behalf. Their fees are deductible.
Stationery and admin costs
Phone calls to your property manager are deductible, and so are stationery and postage. Tax-related costs such as your accountant’s fee for preparing your rental property schedule count too.
What the ATO is targeting this year
The ATO’s focus areas for tax time 2026 are work-related deductions and omitted income. Rental income is on that list. The ATO has had rental claims in its sights for longer. In May 2024 it said 9 out of 10 rental property owners were getting their returns wrong.
Extended data matching
Under a program published in August 2024, the ATO collects property management records from property management software companies. It covers every financial year from 2018-19 to 2025-26, with records on about 2.3 million individuals a year. The data includes owner details, transactions, account balances, income and expenses, for both residential and commercial properties.
That means the ATO can cross-check what your property manager reports against what you declare on your tax return. If you under-report rental income or over-claim deductions, the mismatch will show.
Specific focus areas
Repairs versus capital improvements. In May 2024, ATO Assistant Commissioner Rob Thomson said the ATO was keeping a close eye on repairs and maintenance claims. His examples: replacing damaged carpet or a broken window is a general repair you claim now. Ripping out an old kitchen for a new one is a capital improvement, deductible only over time. The line between “repair” and “improvement” is where many investors get caught.
Loan interest apportionment. If you’ve redrawn or refinanced to pay for private spending, you can’t claim the interest on the private part. “Payments must be apportioned between the private and investment components for the life of the loan,” Mr Thomson said in June 2024. Paying back the private portion later doesn’t make all the interest deductible.
Holiday homes and short-term rentals. On 20 May 2026 the ATO finalised its holiday home ruling as TR 2026/1, replacing draft TR 2025/D1. If a holiday home isn’t used or held mainly to produce rent, ownership costs like interest, rates, insurance and repairs are not deductible. Only costs such as platform fees, advertising and cleaning after guests remain claimable. The ATO’s compliance guideline lists advertising above the market rate as a sign the property isn’t genuinely held for rent.
The ATO has said it won’t devote compliance resources to this rule for expenses incurred before 1 July 2026, which covers your 2025-26 return. That pass doesn’t apply where there’s evidence of avoidance or fraud. It ends for expenses from 1 July 2026.
Rental income gaps. The ATO also collects rental bond data from state bond authorities, on about 2.2 million individuals a year. It compares that data with tax returns. Suppose your property was tenanted for 50 weeks but you only declared 45 weeks of rental income. The matching is built to find that kind of gap.
What to sort before you lodge
Get a depreciation schedule
This is the one big deduction you can still put in place after year-end. If you don’t have a schedule, get one now. A quantity surveyor prepares a report that applies to your 2025-26 return. If you’ve owned the property for years without one, your accountant may be able to amend recent prior returns to claim what you missed. The quantity surveyor’s fee is itself deductible.
See what your deductions are worth on your 2025-26 return.
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Reconcile your records before you lodge
Make sure every dollar of rental income is accounted for and matched to your receipts. With the ATO’s data matching, any gap between what your property manager paid you and what you declare can be picked up. Check your property manager statements against your own records now, before the ATO writes to you.
Split repairs from improvements
Go through the work you did during the year and sort it correctly. Repairs that restore something to its original condition (a new coat of paint, a fixed fence, a repaired hot water system) are immediately deductible. Improvements are claimed over time instead. This is where a lot of investors trip up.
Plan next year’s timing now
Two levers you’ve missed for 2025-26 but can still use before 30 June 2027. First, prepay up to 12 months of interest, insurance, body corporate, or management fees before year-end to bring the deduction forward. For a prepayment of $1,000 or more, the service period must be 12 months or less and end by 30 June 2028. Second, time any planned repairs to land before 30 June rather than just after. Both shift deductions into the earlier year. Worth a conversation with your lender and accountant well before next EOFY.
How the Stage 3 tax cuts affect your deductions
The Stage 3 tax cuts took effect on 1 July 2024, changing the income tax brackets. This is the second full financial year under the new rates. The 2025-26 resident rates are below, before the 2% Medicare levy.
| Taxable income | Tax rate |
|---|---|
| $0 to $18,200 | 0% |
| $18,201 to $45,000 | 16% |
| $45,001 to $135,000 | 30% |
| $135,001 to $190,000 | 37% |
| $190,001+ | 45% |
For property investors, the key impact is on the value of your negative gearing deductions. A dollar of rental loss reduces your taxable income, so it saves you tax at your marginal rate. If you earn between $45,001 and $135,000, that rate is now 30%. A dollar of deduction saves you 30 cents. Above $135,000 it saves 37 cents, and above $190,000, 45 cents.
Stage 3 lowered most of these rates. Income between $45,001 and $120,000 was previously taxed at 32.5% and is now 30%. The old 37% rate started at $120,001, where the 30% rate now runs all the way to $135,000. For many investors, a dollar of deduction saves less tax than it did two years ago. Marginal rates simply came down.
What you can claim stays the same, but each claim is worth a little less.
The budget changes and your 2025-26 return
The 12 May 2026 federal budget announced two major reforms, both starting 1 July 2027. Both are now law.
- Negative gearing on established homes. Investors who buy an established home after 7:30pm on 12 May 2026 can no longer offset rental losses against their salary. From the 2027-28 year, losses can only be offset against residential rental income or residential capital gains, with any excess carried forward.
- The CGT discount. For individuals, trusts and partnerships, the 50% discount will be replaced with cost base indexation and a 30% minimum tax on capital gains.
Two things matter for your 2025-26 return. First, if you owned the property before 7:30pm on 12 May 2026, or were under contract by then, you keep negative gearing on it. That protection lasts as long as you hold it. That grandfathering does not extend to the CGT discount. On every property, growth up to 30 June 2027 keeps the 50% discount. Growth after that date goes through the new method. New builds keep negative gearing and can choose the 50% discount when sold, though the new-build definition is still only a draft. Second, the ATO has confirmed these changes don’t apply to your 2025-26 return.
So for your 2025-26 return, focus on maximising your deductions under the current rules. The changes are not retrospective.
Thinking about selling a property and using the current 50% CGT discount? The relevant date is the contract date, not the settlement date. Talk to your accountant about timing if this applies to you. Our capital gains tax calculator can give you a quick estimate under current rules.
Your lodgment checklist
Before you lodge your 2025-26 return, make sure you’ve:
- Collected all rental income statements from your property manager
- Gathered all expense receipts (interest, insurance, rates, repairs, management fees)
- Obtained or updated your depreciation schedule
- Separated repairs (immediate) from improvements (depreciated)
- Claimed any expenses you prepaid before 30 June
- Reviewed your loan structure for correct interest apportionment
- Checked for any personal use periods (holiday homes / Airbnb)
- Booked time with your accountant
Don’t leave deductions on the table
The difference between a well-prepared tax return and a rushed one can be thousands of dollars. Depreciation is a paper deduction, so you claim it without spending anything in the year.
If you’re building a property portfolio, the savings from getting your tax right add up every year you hold. An extra $10,000 in deductions per year across a 10-year hold is $100,000 in reduced taxable income.
For a full comparison of annual land tax across every state, see our land tax by state guide or run your own figure through the land tax calculator. For upfront stamp duty costs, see our stamp duty by state comparison.
This is general information only and not tax advice. Tax rules are complex and depend on your individual circumstances. Always consult a qualified tax professional for advice specific to your situation.
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