With the property market holding steady and the ATO tightening its focus on compliance, property tax deductions are more important—and nuanced—than ever for Australians in 2025. Whether you’re a seasoned investor or a first-home buyer dipping a toe into the rental market, understanding the latest rules can make a significant difference to your bottom line.
What’s New in 2025: ATO Updates and Policy Changes
This year, the ATO has sharpened its scrutiny on property-related claims, especially around rental expenses and capital works deductions. Notably, from July 1, 2025, enhanced digital record-keeping requirements have kicked in, making it mandatory for landlords to keep digital copies of all expense receipts for at least five years. The move aims to reduce the $1.5 billion annual tax gap attributed to property deduction errors.
- Interest Deductibility: Investors can still claim interest on loans used to purchase, renovate, or repair rental properties. However, redraws for personal use are now flagged for review, so separation of funds is crucial.
- Depreciation: The 2025 rules maintain strict boundaries: you can only claim depreciation on new assets or those added to the property post-purchase. If you buy a second-hand property, you can’t claim on existing fixtures.
- Repairs vs. Improvements: The ATO has clarified that only repairs to restore the property to its original condition are immediately deductible. Structural improvements must be depreciated over several years.
For owner-occupiers, the principal place of residence remains exempt from capital gains tax, but be wary: partial rentals (such as Airbnb) may reduce this exemption proportionally.
Maximising Deductions: Common and Overlooked Claims
Getting the most from your property investment means knowing both the common deductions and the less-obvious ones that often go unclaimed:
- Loan Interest and Fees: Any interest paid on your investment loan is deductible, but so too are loan establishment fees, mortgage broker fees, and even the cost of early repayment penalties.
- Property Management Costs: Agent fees, advertising for tenants, and even landlord insurance premiums all count as deductions.
- Travel Expenses: From 2025, travel to inspect or maintain rental properties remains non-deductible for most individuals. However, corporate landlords and some trusts may still claim if the travel is business-related and properly documented.
- Depreciation Schedules: A depreciation schedule from a qualified quantity surveyor can help you maximise claims for capital works and plant and equipment. In 2025, the ATO is encouraging digital submission of these schedules for faster processing.
- Body Corporate Fees: Administrative and sinking fund contributions are deductible, but special levies for capital improvements must be claimed over time.
Less obvious claims include legal expenses (for evicting tenants), pest control, and even some accounting fees directly related to the property.
Real-World Examples: Smart Strategies for 2025
Let’s look at how Australians are navigating the changing landscape this year:
- Case Study 1: Emma, a Melbourne investor, purchased a new apartment in 2022. She’s able to claim depreciation on both the building (capital works) and new appliances she installed in 2025. By updating her depreciation schedule, she boosted her annual deductions by $3,500.
- Case Study 2: James and Priya, a Sydney couple, rent out their granny flat on Airbnb for part of the year. They keep meticulous digital records of all related expenses—cleaning, utilities, and repairs—ensuring they only claim deductions for the period it’s rented. They also adjust their CGT exemption to account for the partial rental, avoiding surprises down the track.
- Case Study 3: Li, a Brisbane landlord, refinanced her investment loan in late 2024. She claimed the discharge fees on her old loan and the establishment fees on her new loan, effectively reducing her taxable income.
Across the board, the key to success in 2025 is keeping digital, detailed records and understanding the difference between immediate and depreciable expenses.
Compliance and Pitfalls: Avoiding ATO Red Flags
With property deductions under the microscope, it’s more important than ever to avoid common mistakes. In 2025, the ATO is using advanced data-matching technology to cross-check claims against bank statements, property sales, and rental listings.
- Over-claiming Interest: Only the portion of the loan used for the rental property is deductible. Mixed-use loans are a major audit trigger.
- Claiming for Vacant Periods: Expenses can only be claimed for periods when the property is genuinely available for rent. Removing online listings or refusing tenants can cost you deductions.
- Incorrect Repairs Claims: Painting a wall is a repair; building a new deck is an improvement. Get this wrong, and you risk penalties.
- Personal Use: If you or family stay in the property, you must apportion expenses accordingly.
Being proactive—by updating records, reviewing claims annually, and seeking expert guidance—will help you maximise deductions and minimise audit risk in the new compliance environment.
