Rental Income Tax and Depreciation: What Victorian Landlords Can Actually Claim

Rental income is added to your other income and taxed at your marginal rate. Against it you can claim agent fees, council rates, water charges, land tax, insurance, loan interest, repairs and maintenance, and the decline in value of eligible assets. You cannot claim travel to the property, second-hand depreciating assets bought after 1 July 2017, or the conveyancing and purchase costs, which go to your capital gains tax cost base instead.

How rental income is taxed

There is no separate rental tax rate. Your net rental income, which is rent received minus deductible expenses, is added to your salary and everything else, and the total is taxed at the resident rates.

For the 2026-27 income year:

Taxable income	Tax on this income
$0 to $18,200	Nil
$18,201 to $45,000	15c for each $1 over $18,200
$45,001 to $135,000	$4,020 plus 30c for each $1 over $45,000
$135,001 to $190,000	$31,020 plus 37c for each $1 over $135,000
$190,001 and over	$51,370 plus 45c for each $1 over $190,000

Those rates exclude the 2% Medicare levy.

Note the second bracket. It was 16c in 2025-26 and is 15c in 2026-27. Small, but it is the kind of change that makes last year’s spreadsheet quietly wrong.

What this structure means in practice: a deduction is worth your marginal rate, not a flat amount. The same $2,248 insunew-builds carve-outrance premium saves $337 at the 15c rate and $1,012 at the 45c rate. So which partner owns the property, in what proportion, changes the value of every deduction in this article. That is a question for your accountant before you buy, not after.

A worked example

An Epping three-bedroom house renting at $530 a week, the median advertised across the twenty listings available on Domain on 13 October 2026.

• Rent received: $27,560
• Agent fees, letting and administration: $2,000
• Council rates and water charges: $2,600
• Landlord insurance: $2,248
• Land tax on a $400,000 site value, general individual rate: $1,650
• Repairs and maintenance: $1,500
• Capital works deduction, 2.5% of $250,000 of original construction: $6,250
• Loan interest on $400,000 at 6%: $24,000
• Total deductions: $40,248
• Net rental result: a $12,688 loss

That loss reduces your other taxable income. At a 30% marginal rate it is worth about $3,806 back.

Which leads to the point that most articles on this topic avoid. The property cost you $12,688 in paper terms, of which $6,250 was a deduction you did not pay in cash. So your real cash shortfall was about $6,438, and you recovered $3,806 of it through tax. You were out of pocket roughly $2,632 for the year, and you are betting on capital growth to make that worthwhile.

That is negative gearing described honestly. It is a strategy, and it is not free money.

What you can claim immediately

The ATO’s published list, for expenses deductible in the year you incur them:

• Advertising for tenants
• Agent fees and commission
• Council rates and water charges
• Land tax
• Body corporate administrative fund fees
• Cleaning, gardening, lawn mowing and pest control
• Insurance: building, contents, public liability and loss of rent
• Loan interest
• Repairs and maintenance
• Some legal expenses, such as evicting a non-paying tenant

Two items get asked about most often, so to be explicit: yes, landlord insurance is deductible, and yes, property management fees are deductible.

Two more rules worth knowing. Pre-paid expenses are deductible immediately if they are under $1,000, or if the service period is twelve months or less and ends in the next income year. And depreciating assets costing $300 or less can be claimed outright rather than depreciated, which covers a surprising amount of what you buy for a rental.

What you claim over several years

Borrowing expenses such as loan establishment fees, lender’s mortgage insurance and title search fees charged by the lender. Spread over five years or the loan term, whichever is shorter. If the total is $100 or less, claim it all in the year you incur it.

Capital works, meaning the structure itself and permanent fixtures. For residential buildings the ATO’s rates run by the date construction commenced: 4% a year over 25 years where construction commenced between 18 July 1985 and 15 September 1987, and 2.5% a year over 40 years from 16 September 1987 onwards. Construction commencing on or before 17 July 1985 attracts no capital works deduction at all. You cannot start claiming until construction is complete, and the total cannot exceed what the construction cost.

Do the arithmetic on that 40-year clock. A house built in 1988 reaches the end of its capital works period in 2028. A house built in 1975 has no capital works deduction at all, because construction commenced before 18 July 1985. Which is directly relevant in this corridor: much of Thomastown, Lalor and Fawkner’s housing stock is older than the cut-off, while Epping’s, Craigieburn’s and Doreen’s newer estates are comfortably inside it.

Depreciating assets over $300, meaning the removable items: appliances, carpets, blinds, hot water systems, air conditioners. Either diminishing value at 200% divided by the effective life, or prime cost at 100% divided by the effective life. Assets under $1,000 can be grouped into a low-value pool.

The two 2017 changes that still catch people

Both took effect on 1 July 2017 and both are still the most common source of incorrect claims on older advice.

Second-hand depreciating assets. In most cases you cannot claim the decline in value of second-hand depreciating assets in a residential rental after 1 July 2017. The exception is assets bought before 7:30pm AEST on 9 May 2017 and installed in the rental before 1 July 2017.

In plain terms: if you buy an established house with an existing dishwasher, oven, carpets and blinds, you generally cannot depreciate them. If you buy a brand-new property, or you buy and install the assets yourself, you can.

That single rule is the largest difference between the after-tax position of a new build and an established purchase, and it is a real argument for new property that has nothing to do with builder marketing. It does not make the capital works deduction disappear on an established house, which survives intact.

Travel expenses. From 1 July 2017 you cannot claim the cost of travelling to inspect or maintain a residential rental property, unless you are in the business of letting rental properties or are an excluded entity. Driving to your Doreen rental to mow the lawn is not deductible. Paying someone to mow it is.

Repairs versus improvements, which is where audits start

The distinction is simple to state and genuinely difficult to apply.

A repair restores something to the condition it was in. Deductible immediately.

An improvement makes something better than it was, or replaces an entire asset. Not immediately deductible. It becomes capital works or a depreciating asset, claimed over years.

What you did	Likely treatment
Fixed a section of leaking roof	Repair, deductible now
Replaced the whole roof	Capital works, 2.5% a year
Patched and repainted a damaged wall	Repair, deductible now
Repainted the whole house in a new colour before letting	Likely improvement
Replaced a broken oven element	Repair, deductible now
Replaced the oven	Depreciating asset
Replaced a rotten fence panel	Repair, deductible now
Replaced the whole fence	Capital works

Then the rule that surprises everyone: repairs to fix damage that existed when you bought the property are generally not deductible as repairs. They are initial repairs, treated as capital. So the $8,000 you spent fixing the bathroom in the first month because it was already broken is not the deduction you assumed it was.

The practical consequence: a condition report and dated photographs from the day you took possession are a tax document as much as a tenancy one. They establish what was already wrong, which determines how every subsequent fix is treated.

Is a depreciation schedule worth it?

A quantity surveyor’s depreciation schedule itemises the capital works and depreciating assets in your property with their values and effective lives, so your accountant can claim the maximum legitimate amount.

Worth it when: the property was built after 16 September 1987, so capital works are available. Or it is new, or recently renovated by you, so the assets are depreciable. On the $250,000 construction cost in my example above, the capital works deduction alone is $6,250 a year for 40 years. A one-off schedule fee against that is trivially worthwhile, and the fee itself is deductible.

Not worth it when: construction commenced on or before 17 July 1985 and you have not renovated, so there are no capital works to claim, and you bought the assets second-hand with the house, so they are not depreciable either. Then a schedule finds very little and you have paid for the privilege.

The test is two questions. When was it built, and did you buy the assets or install them? A quantity surveyor will usually tell you honestly whether a schedule will pay for itself, because preparing one that finds nothing is bad for them too.

The five mistakes I see most, and why each one happens

Not a list of rules. A list of reasons people get this wrong, because the reason is usually more useful than the rule.

Claiming the full interest on a redraw. You had a loan on the rental, you redrew $40,000 to renovate your own kitchen, and the statement now shows one loan with one interest figure. Only the rental portion of that interest is deductible, and once the loan is mixed, apportioning it is a permanent annual chore. This happens because redraw is convenient and the tax consequence is invisible at the moment you use it. The fix is a separate loan, decided before the redraw rather than after.

Treating initial repairs as repairs. The bathroom was already broken when you bought the place, you fixed it in month one, and you claimed $8,000. Those are initial repairs and they are capital. This happens because the work genuinely was a repair in ordinary English, and the tax meaning differs from the everyday one.

Depreciating assets that came with the house. You bought an established Lalor house in 2023 with an existing oven, dishwasher, carpets and blinds, and someone prepared a schedule depreciating them. After 1 July 2017 those second-hand assets generally are not claimable. This happens because advice written before 2017 is still circulating, and because the rule is counterintuitive: the assets are real, they are wearing out, and you still cannot claim them.

Claiming the trip to the property. You drove to Doreen four times to mow and check on it, logged the kilometres, and claimed them. Travel to a residential rental has not been deductible since 1 July 2017. This happens because it is deductible for almost every other kind of income-producing asset, so the exception feels arbitrary.

Claiming conveyancing and stamp duty as expenses. They are not deductible against rental income. They go into your capital gains tax cost base and reduce your eventual gain instead. This happens because they are unmistakably costs of owning the property, and the distinction between a revenue expense and a capital one is not obvious from the invoice. The money is not lost. It just arrives as a benefit when you sell, which might be twenty years away.

Four of those five cost you money. The fifth, the cost base one, costs you nothing if you keep the paperwork and everything if you do not.

Owning it in the right name

A short section on the decision that is hardest to reverse.

Because a deduction is worth your marginal rate, the same property produces different after-tax results depending on who owns it. Run the $12,688 loss from my example above through the 2026-27 brackets:

Owner’s other income	Marginal rate	Value of the loss
$40,000	15c	about $1,903
$90,000	30c	about $3,806
$150,000	37c	about $4,695
$250,000	45c	about $5,710

A negatively geared property is worth roughly three times as much to the higher earner in a couple. And a positively geared one works the other way: the income lands on top of the higher earner’s salary and is taxed hardest there.

One warning before anyone models a trust off the figures in this article. The $1,650 land tax figure I used is the general individual rate. Land held in a trust is assessed differently in Victoria, on a much lower threshold and at surcharge rates, so a trust purchase modelled on an individual’s land tax number will understate the cost, sometimes badly. Get the trust figure from the State Revenue Office or your accountant before the structure decision, not after.

Which points at the uncomfortable part. The ownership structure that suits a property making a loss today is the opposite of the one that suits it making a profit in twelve years, once rents have grown and the loan has shrunk. Most investment properties cross from one state to the other during a normal holding period.

Changing ownership later means a transfer, which meanAgent fees and commissions duty and potentially a capital gains event. At Epping’s three-bedroom median of $687,000, duty alone would be $36,290. So this is effectively a once-only decision, made at purchase, about a property whose tax profile will invert partway through.

That is a conversation for an accountant and, if a trust or company is on the table, a lawyer. What an agent can tell you is the rent and the value. Who should own it is not our call, and anyone in real estate who tells you confidently is overstepping.

What changes on 1 July 2027, and why the worked example above has a shelf life

Everything to this point describes the rules as they apply now. Two legislated changes start on 1 July 2027 and one of them goes to the heart of the example above.

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026, Act No. 49 of 2026, was made on 26 June 2026. The Australian Taxation Office states that the measures “are now law”. They were announced in the 2026-27 Federal Budget on 12 May 2026.

Schedule 2 limits negative gearing for residential property to new builds, from 1 July 2027. Properties held at 7.30pm AEST on 12 May 2026 are exempt from that change.

Read that against the $12,688 rental loss I worked through earlier, and the table valuing it at four different marginal rates. That arithmetic holds today. Whether it still holds for you after 1 July 2027 depends on one fact: when you acquired the property.

• Held since before 7.30pm AEST on 12 May 2026: grandfathered, and the example applies.
• Acquired after that moment, and it is a new build: the new-builds carve-out applies.
• Acquired after that moment, and it is an established dwelling: the deductibility of a rental loss against your other income changes from 1 July 2027.

So if you are reading this while deciding whether to buy an established investment property, the single most valuable thing on this page is that date, not the deduction list.

Schedule 1 separately replaces the 50% capital gains tax discount, for individuals, trusts and partnerships, with cost base indexation and a 30% minimum tax rate on capital gains, from 1 July 2027, applying only to gains accruing after that date. That matters for the cost base point below: the conveyancing and duty you cannot claim now still reduce your eventual gain, and the method for calculating that gain changes.

This is the largest change to the taxation of Australian residential property in a generation and it is well beyond what a real estate agency should be interpreting for you. The deduction lists above come straight from published ATO guidance and you can rely on them as a summary. The 2027 changes you should take to a registered tax agent, with your purchase date in hand.

The records to keep

Not an exciting section, and it is the one that determines whether any of the above survives scrutiny.

Keep rental statements from your agent, every invoice and receipt, loan statements showing interest, your insurance schedules, rates and water notices, land tax assessments, the depreciation schedule, the contract of sale and settlement statement, and the entry condition report with its photographs.

Keep the purchase and sale documents indefinitely rather than for five years, because conveyancing and acquisition costs cannot be claimed as expenses but do form part of your capital gains tax cost base. They reduce your eventual gain, and you will need them in a decade.

One more. If you ever lived in the property before renting it out, keep evidence of the dates. Those dates determine whether the six-year main residence rule applies and what share of the eventual gain is taxable, and reconstructing them from memory years later is both painful and unreliable.

Frequently asked questions

1. What can landlords claim on tax in Australia? The ATO lists advertising for tenants, agent fees and commission, council rates, water charges, land tax, body corporate administrative fund fees, cleaning, gardening and pest control, insurance including loss of rent, loan interest, repairs and maintenance, and some legal expenses such as evicting a non-paying tenant. Separately you claim borrowing expenses over five years, capital works at 2.5% a year, and the decline in value of eligible assets.

2. What is a depreciation schedule? A depreciation schedule is a report, usually from a quantity surveyor, itemising the capital works and depreciating assets in a rental property with their values and effective lives. Your accountant uses it to claim the correct deduction each year. It is prepared once and used for the life of your ownership, and the cost of preparing it is itself deductible.

3. Is a depreciation schedule worth it? Usually yes if the property was built after 16 September 1987, since capital works are then claimable at 2.5% a year over 40 years, which on $250,000 of construction cost is $6,250 a year. Usually not if construction commenced on or before 17 July 1985 and you have not renovated, because there are no capital works to claim and assets bought second-hand with the house generally cannot be depreciated after 1 July 2017.

4. Can I claim property management fees? Yes. Agent fees and commission are on the ATO’s list of expenses deductible in the year you incur them, as are advertising costs for finding tenants. Keep the annual rental statement your agent issues, which itemises the fees charged across the year.

5. Can I claim landlord insurance? Yes. The ATO lists insurance on a rental property, including building, contents, public liability and loss of rent, among the immediately deductible expenses. On Canstar’s March 2026 average Victorian house premium of $2,248, a landlord on a 30% marginal rate recovers about $674 through the deduction.

6. Can I claim repairs? Repairs are deductible in the year you incur them, as long as they restore something to its previous condition rather than improving it. Two exceptions matter: replacing an entire asset is capital rather than a repair, and fixing damage that already existed when you bought the property is an initial repair, treated as capital rather than deducted.

7. What is the difference between repairs and improvements? A repair restores something to the condition it was in and is deductible now. An improvement makes it better than it was, or replaces a whole asset, and is claimed over years as capital works or a depreciating asset. Fixing a section of leaking roof is a repair; replacing the roof is capital works at 2.5% a year.

8. Can I claim interest on the loan? Yes, interest on a loan used to buy or improve a rental property is deductible. Loan establishment costs are different: they are borrowing expenses, spread over five years or the loan term, whichever is shorter, unless the total is $100 or less. If the loan is partly for private purposes, only the rental portion of the interest is deductible.

9. How is rental income taxed? It is added to your other income and taxed at your marginal rate, with no separate rental rate. For 2026-27 the resident brackets are nil to $18,200, then 15c, then $4,020 plus 30c from $45,001, then $31,020 plus 37c from $135,001, then $51,370 plus 45c from $190,001, before the 2% Medicare levy. A net rental loss reduces your other taxable income.

10. What records do I need to keep? Rental statements, every invoice and receipt, loan statements showing interest, insurance schedules, rates and water notices, land tax assessments, your depreciation schedule, and the entry condition report with photographs. Keep the contract of sale and settlement statement indefinitely, because acquisition costs form part of your capital gains tax cost base. Also keep evidence of any period you lived in the property, which determines how the six-year main residence rule applies.