The 2026 Federal Budget created more confusion among Australian property investors than any reform in nearly 30 years.
Most of it was noise.
The ATO’s treatment of rental property expenses has not changed. Negative gearing in Australia still works in full for new builds and every property purchased before Budget night. Depreciation under Division 43 and Division 40 is unchanged. Interest on investment loans remains fully tax deductible.
One thing changed: established residential properties purchased after 12 May 2026 can no longer offset rental losses against wages and salary income. That is a meaningful change for investors buying existing properties from that date forward — but it does not change the deductions available on most portfolios already.
What Tax Deductions Can You Claim on an Investment Property in Australia?
The ATO allows landlords to deduct all legitimate rental property expenses against rental income. Here is the complete picture of what remains fully available.
Interest on your investment loan
The largest single tax deduction for investment property in Australia for most landlords. On a $500,000 investment loan at 6.2%, the annual interest bill is $31,000. All of it is deductible against rental income, and for qualifying properties, against wages and salary income through negative gearing.
Rental property expenses
Council rates, water charges, land tax, building insurance, landlord insurance and property management fees (typically 7–10% of weekly rent) are all deductible in the year you incur them. Across a portfolio these expenses accumulate into a significant annual deduction.
Repairs and maintenance
The ATO draws a clear line between repairs and improvements. A repair restores something to its previous working condition and is fully deductible now. An improvement adds value or extends the asset’s life and must be depreciated as a capital item over time. Misclassifying improvements as repairs is one of the most common errors identified in ATO rental property audits.
Borrowing costs
Loan establishment fees, lenders mortgage insurance premiums and refinancing costs are deductible, generally spread over five years or the loan term if shorter.
Accounting and tax preparation fees
The cost of preparing your investment property tax return — including your accountant’s fees for the rental schedule — is itself a deductible expense.
How Does Depreciation Work on an Investment Property in Australia?
Depreciation is where the gap between new builds and established properties becomes most visible. It is also where most landlords leave the most money on the table.
The ATO recognises two separate depreciation streams.
Division 43: Capital Works Depreciation
You can claim 2.5% per year on the original construction cost of a residential building constructed after September 1987. On a property that cost $380,000 to construct, Division 43 depreciation delivers $9,500 in annual deductions on top of all other rental property expenses, regardless of whether the property is positively or negatively geared.
Division 40: Plant and Equipment Depreciation
Fixtures and fittings depreciate over their ATO-defined effective life. Hot water systems, ovens, air conditioning units, carpet and blinds each have a scheduled depreciation rate under the ATO’s plant and equipment rules.
New Build vs Established: The Depreciation Difference
For new builds, both Division 43 and Division 40 apply in full from the date of purchase. For established properties purchased after 1 July 2017, Division 40 is restricted to assets you personally install after buying. The previous owner’s fixtures and fittings are no longer claimable by a new buyer.
This single rule makes new builds considerably more tax-efficient for investors building or growing a portfolio from 2026 onwards.
Do You Need a Quantity Surveyor for Your Investment Property?
A quantity surveyor is not legally required. But for any investor who wants to maximise their tax deductions, commissioning a property depreciation schedule is one of the highest-return decisions you can make.
A quantity surveyor prepares a formal document identifying every depreciable item in the property and the annual deduction you can claim for each. This includes the construction cost basis for Division 43 claims and the effective lives of all plant and equipment for Division 40 claims.
How Does Negative Gearing in Australia Work After the 2026 Budget?
Negative gearing occurs when your total deductible expenses — interest, depreciation, rental property expenses and all other holding costs — exceed your annual rental income. The resulting net loss reduces your taxable income.
Here is exactly how the rules now apply depending on when and what you purchased.
Properties purchased before 12 May 2026
Negative gearing operates exactly as it always has. All rental losses offset wages and salary income in full. These properties are fully grandfathered for as long as you hold them. Nothing changes.
New residential builds purchased after 12 May 2026
Full negative gearing is retained. Rental losses offset wages and salary income. New builds also retain access to both the original 50% CGT discount and the new indexation model on sale — investors choose whichever delivers the better outcome. Completely unaffected by the Budget changes.
Established properties purchased after 12 May 2026
Negative gearing still applies, but rental losses can only offset other rental income, not wages or salary. Unused losses carry forward to future years where they can offset future rental income or capital gains on eventual sale.
Capital Gains Tax on Investment Property After the 2026 Budget
Capital gains tax on investment property has changed for assets purchased after 12 May 2026.
The 50% CGT discount — in place since 1999 — has been replaced for established property purchases with a cost-base indexation model. Under indexation, only the real gain above inflation is included in assessable income. A 30% minimum tax rate applies on top.
The practical implication: new residential construction carries more favourable tax treatment than established property at every stage — during the hold through negative gearing, and at exit through CGT flexibility.
New Build vs Established Property: Tax Position Compared
| Factor | New Build (post-Budget) | Established Property (post-Budget) |
|---|---|---|
| Negative gearing against wages | Yes — fully deductible | No — losses carry forward only |
| Division 43 depreciation | Full rate on full construction cost | Available if built post-1987 |
| Division 40 depreciation | All fixtures and fittings | Only assets you personally install |
| CGT on sale | Choice: 50% discount or indexation | Indexation model only |
| First-year depreciation estimate | $14,000–$18,000 | $4,000–$8,000 |
That is $6,756 returned to the investor each year before a single dollar of capital growth. For an established property purchased post-Budget, that same $18,260 loss cannot reduce this year’s wages tax. It carries forward, deferring the benefit by potentially years. Over a ten-year holding period, the cumulative cashflow difference runs into the tens of thousands of dollars.
AllianceCorp’s Senior Property Wealth Planners work with investors across every stage of portfolio growth.
What Records Do You Need for Investment Property Tax Deductions in Australia?
The ATO requires landlords to maintain:
- Loan statements showing interest charged each financial year
- All receipts for rental property expenses — repairs, insurance, management fees, council rates
- A property depreciation schedule from a registered quantity surveyor
- Records of the original purchase price and all acquisition costs, retained for the full ownership period plus five years after sale
- Rental income statements from your property manager
Keep records for at least five years from the date you lodge each return. For capital gains tax on investment property, the ATO may require records going back to the original purchase date. Never discard acquisition documents.
Frequently Asked Questions: Tax Deductions for Investment Property in Australia
Want to Understand Your Full Tax Position as an Investor?
Most investors we speak to are either missing deductions they are entitled to, holding properties in the wrong structure, or about to make a purchase without understanding how the 2026 changes affect their specific situation.
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