The 2025-26 financial year ends on 30 June. If you own investment property, the next twelve weeks are when you should be reviewing your deductions, organising your records, and making strategic decisions before the year closes out.
This year has added complexity. The RBA has delivered back-to-back rate hikes, pushing holding costs higher. The federal budget on 12 May may announce changes to negative gearing and the CGT discount. And the ATO has significantly expanded its data matching program for rental properties.
Here’s what you need to know.
The deductions you should be claiming
If you’re not claiming all of these, you’re leaving money on the table.
Interest on your investment loan
This is typically your largest deduction. You can claim interest on any loan used to purchase, renovate, or maintain an investment property. With rates now at 5.50% or higher on the average variable loan, the interest component of your repayments is substantial.
Important: Only the interest portion relating to the investment property is deductible. If you’ve drawn down on your loan for personal purposes (a holiday, a car, renovations on your own home), you must apportion the interest between investment and personal use. The ATO has flagged this as a specific focus area for 2025-26.
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. A carpet might depreciate over 8-10 years, an air conditioner over 10 years.
Division 43 (capital works). The building structure itself. If your property was built 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 - a significant deduction many investors miss.
The 2017 change: If you purchased a second-hand property after 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 inspection typically costs $600-$800 and often identifies $5,000-$20,000+ in deductions in the first year alone. It’s one of the highest-return investments you can make.
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, replacing broken blinds - these 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 depreciated over time (Division 43). Replacing damaged carpet with the same type of carpet? That’s a repair. Ripping out carpet and installing timber floors? That’s an improvement. The ATO is specifically targeting investors who claim improvements as repairs.
Property management fees
If you use a property manager, their fees (typically 5-10% of rental income) are fully deductible. This includes management fees, letting fees for finding new tenants, and advertising costs for tenant searches.
Insurance
Landlord insurance, building insurance, and any landlord-specific policies are deductible. Public liability insurance on the property is also claimable.
Council rates, water rates, and body corporate
All deductible. Keep your receipts or statements.
Travel to your property
Important: travel to inspect a rental property is no longer deductible for individual investors. This changed on 1 July 2017. You cannot claim flights, accommodation, car expenses, or meals for property inspections. The only exception is if you’re in the business of property investing (not just an individual investor). This is one of the most commonly overclaimed deductions, and the ATO actively watches for it.
For interstate investment properties, your property manager handles inspections on your behalf, and their fees are deductible.
Stationery and admin costs
Phone calls to your property manager, stationery, computer costs (apportioned for property use), and accounting fees for preparing your rental property tax return are all deductible.
What the ATO is targeting this year
The ATO has made rental property deductions a primary focus area for 2025-26. Here’s what they’re watching:
Expanded data matching
The ATO is acquiring detailed property management records from property management software companies, covering approximately 2.3 million user records over a seven-year period (2018-19 to 2025-26). The data includes property owner identification, transaction details, account balances, income, and expenses for both residential and commercial properties.
In plain English: the ATO can now cross-reference what your property manager reports with what you declare on your tax return. If you’re under-reporting rental income or over-claiming deductions, they’ll see it.
Specific focus areas
Repairs versus capital improvements. ATO Assistant Commissioner Rob Thomson has explicitly called this out. Replacing damaged carpet is a repair (immediately deductible). Installing a new kitchen is a capital improvement (depreciated over time). The line between “repair” and “improvement” is where many investors get caught.
Loan interest apportionment. If you’ve refinanced or accessed equity for personal use, you need to separate the investment portion from the personal portion. The ATO has flagged that “people aren’t apportioning correctly between interest relating to private use and the interest that relates to the income they’re generating.”
Holiday homes and short-term rentals. The ATO released a new draft ruling (TR 2025/D1) that significantly tightens the rules for mixed-use and holiday rental properties. If your property is mainly for personal recreation, ownership costs like interest, rates, insurance, and maintenance are no longer deductible - only cleaning, advertising, and platform fees remain claimable. The ATO now cross-references your Airbnb calendar availability and personal travel history against your tax return. Listing a property at an unrealistically high price during peak season doesn’t count as “genuinely available.”
The ATO has said it won’t apply the stricter rules retrospectively for expenses before 1 July 2026, provided the arrangement was entered into before 12 November 2025. But from this financial year forward, the scrutiny is real.
Rental income gaps. The ATO is matching tenancy bond data (2.2 million records from state bond authorities) against declared income. If your property was tenanted for 50 weeks but you only declared 45 weeks of rental income, that gap will be flagged automatically.
Rental income gaps. The ATO is matching tenancy data against declared income. If your property was rented for 50 weeks but you only declared 45 weeks of income, that gap will be flagged.
EOFY strategies to consider before 30 June
Prepay expenses
You can prepay up to 12 months of certain expenses before 30 June and claim the deduction in the current financial year. This is most commonly used for:
- Interest on your investment loan (talk to your lender about prepaying)
- Insurance premiums
- Body corporate fees
- Property management fees
The prepayment must cover a period of 12 months or less and the service period must end before 30 June of the following year. This strategy brings forward deductions, reducing your taxable income for 2025-26.
Get a depreciation schedule
If you don’t have one, arrange it before 30 June. The depreciation deductions apply from the date the schedule covers, but having it prepared before year-end ensures you capture the full year’s entitlements.
Conduct repairs before 30 June
If your property needs maintenance work, getting it done before 30 June means you can claim the deduction in this financial year rather than next. A new coat of paint on a rental property, fixing a broken fence, or replacing a faulty hot water system - these are all immediately deductible if completed before year-end.
Remember: repairs are deductible, improvements are not (they get depreciated). Don’t upgrade - just restore to the original condition if you want the immediate deduction.
Review your rental income records
Make sure every dollar of rental income is accounted for. With the ATO’s expanded data matching, any discrepancy between what your property manager paid you and what you declared will be flagged. Check your property manager statements against your records now, not in October when the ATO sends a letter.
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. Here’s what the brackets look like:
| Taxable income | Tax rate |
|---|---|
| $0 - $18,200 | 0% |
| $18,201 - $45,000 | 16% |
| $45,001 - $135,000 | 30% |
| $135,001 - $190,000 | 37% |
| $190,001+ | 45% |
For property investors, the key impact is on the value of your negative gearing deductions. If you earn between $45,001 and $135,000, your negative gearing deductions are worth 30 cents per dollar. Previously, the 32.5% rate applied up to $120,000 and the 37% rate kicked in above that.
For investors earning between $120,000 and $135,000, your deductions are actually worth slightly less under the new brackets (30% vs 32.5%). For those earning above $135,000, the 37% rate means each dollar of rental loss saves you 37 cents in tax.
This doesn’t change what you can claim - it changes what each claim is worth.
The proposed changes: plan but don’t panic
The May 2026 federal budget may announce changes to negative gearing (a two-property cap) and the CGT discount (reduced from 50% to 33%). If announced, these changes are likely to:
- Be grandfathered (existing holdings keep current treatment)
- Have a commencement date (likely 1 July 2026 or later)
- Not affect your 2025-26 tax return
For this EOFY, focus on maximising your deductions under the current rules. Whatever changes come, they won’t be retrospective. Your 2025-26 return will be assessed under the rules as they stand today.
If you’re thinking about selling a property and want to lock in the current 50% CGT discount, the relevant date is typically the contract date, not the settlement date. Talk to your accountant about timing if this applies to you.
The checklist
Before 30 June, 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
- Completed any planned repairs or maintenance
- Considered prepaying eligible expenses
- 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 alone can be worth $5,000-$15,000 per year on a typical investment property, and it costs nothing to hold the asset - it’s a paper deduction.
If you’re building a property portfolio, getting your tax position right from the start compounds over time. An extra $10,000 in deductions per year across a 10-year hold is $100,000 in reduced taxable income. That’s real money.
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.
Want to discuss how to structure your investment property for maximum tax efficiency? Book a free discovery call.
