Tax deductions you can claim on your investment property.


Tax deductions you can claim on your investment property.

Own an investment property? These are the tax deductions you can claim for renovations and costs incurred.

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Renovating a rental property can be an expensive and time consuming business but the good news is that many of the costs you incur can be claimed as a tax deduction, reducing your tax bill for the financial year you undertake the work.  That's the good news; the bad news is that the ATO have investment property owners on their radar this year so if you decide to spruce up your property, it's essential to make sure that you treat your expenses correctly.  So what are the rules? Director of Tax Communications at H&R Block, Mark Chapman explains what works and assets you can claim as a deduction.


Broadly speaking, any work you do to renovate your property will be tax deductible straight away or will qualify as an improvement, which is an item of capital expenditure that will need to be written off over time.
In simple terms, you can claim a deduction for the expenses and investments that relate to your property for the period your property is rented or is available for rent. That can include periods that the property is vacant between tenants (which is important, because major renovations will often occur after a tenant has moved out and before another one moves in).Essentially the same rules apply regardless of whether the property is available for short-term letting (for instance through a website like Airbnb) or is leased to long-term tenants.


Items that can potentially be claimed straight away against your current year's rental income include:
  • Repairs to make good or remedy defects in, damage to or deterioration of the property.
  • Management and maintenance costs, such as advertising, body corporate fees and charges, cleaning, council rates, water charges, land tax, gardening, pest control, insurance (building, contents, public liability).
  • Interest on your bank loans and borrowing expenses.
Major renovations, such as remodelling a bathroom or kitchen are classed as capital improvements.
Major renovations, such as remodelling a bathroom or kitchen are classed as capital improvements. 


Major renovations, such as remodelling a bathroom, are classed as capital improvements by the ATO and are either depreciated over the life of the asset or claimed as capital works deductions. Either way, these cannot be claimed straight away so you'll be looking at spreading the cost over several years, or even decades.
Deductions for construction or renovations can include:
  • Building an extension, garage, patio or pergola.
  • Landscaping the property including installing things like swimming pools, water features, etc.
  • Internal alterations, like removing an internal wall.
  • Structural improvements like adding a carport or retaining wall.
  • Architect or surveyors fees.
  • The cost of building permits.
Building an extension on your investment property can be claimed as a deduction.
Building an extension on your investment property can be claimed as a deduction. 


For separately identifiable assets within the property – such as ovens, heaters, air conditioners and hot water heaters- the cost is depreciated over the life of the asset. A full list of the effective life of assets typically found within rental properties can be found on the ATO website.  It can be useful to contact a quantity surveyor to determine the building costs and prepare a depreciation schedules for the property. They will help determine what can be claimed and their fee is tax deductable.


If you get a builder in to do work that consists of both repairs and improvements at the same time, the ATO recommends you separate these costs. Asking your builder or tradie to produce an itemised invoice can help you work out your claim. If you don't get an itemised invoice, all the expenditure will need to be treated as capital and written off over time.