This guide is designed to help you understand the tax implications of owning a rental property, including income, expenses, co-ownership, and capital gains tax.
Rental Property Income
Rental income is the total amount of rent and associated payments you receive from your rental property. This includes:
Rent payments
Reimbursements for expenses
Payments in goods and services
Insurance payouts replacing lost rent
Booking or letting fees
✅ Example: If you receive $1,500 in rent and $100 for a repair reimbursement, your total rental income is $1,600.
Rental Property Expenses
You can claim deductions for expenses related to your rental property, such as:
Interest on loans used to purchase rental property.
Repairs and maintenance.
Claim depreciation on assets like furniture and fixtures.
Advertising for tenants.
Property agent fees.
Interest on loans.
Council rates.
✅ Example: If you spend $500 on advertising, $200 on agent fees, and $300 on repairs, your total deductible expenses are $1,000.
Expense Type | Criteria |
|---|---|
Interest on Loans | Loans used for rental property |
Repairs and Maintenance | Immediate deductions |
Depreciation | Furniture, fixtures, etc. |
Interest Expenses
You can claim a deduction for interest on loans used to purchase, build, or improve the rental property. However, the interest must relate to the co-owner's share in the property.
✅ Example: If only one co-owner borrows money to buy their share of the property, only that co-owner can claim the interest deduction.
Example: Investment Property Expenses
Scenario: Emma owns a rental property and incurred the following expenses:
Interest on Loans: $8,000
Repairs and Maintenance: $2,000
Depreciation: $1,500
Co-Ownership of Rental Property
Rental income and expenses must be divided between co-owners according to their legal interest in the property, despite any agreement stating otherwise.
Joint Tenants
Each owner holds an equal interest.
On the death of one owner, the property passes to the surviving owner(s).
✅ Example: Mr. and Mrs. Hitchmann own a property as joint tenants. Each must report 50% of the rental income and expenses.
Tenants in Common
Owners may hold unequal interests.
Each owner's share of the property is specified in the title deed.
✅ Example: If Mr. and Mrs. Hitchmann own a property as tenants in common with shares of 75% and 25% respectively, Mrs. Hitchmann reports 75% of the income and expenses, while Mr. Hitchmann reports 25%.
Co-Owners Not in Business
Co-owners are typically investors, not carrying on a business.
Each co-owner reports income and expenses based on their legal interest.
Each must report 50% of the income and expenses.
✅ Example: The Tobins own two units and a house as joint tenants and are not in business.
Reporting Deductions
Expense Type | Amount |
|---|---|
Interest on Loans | $8,000 |
Repairs and Maintenance | $2,000 |
Depreciation | $1,500 |
Total Deductions | $11,500 |