Accounting and tax for residential property investors

How rental income is taxed

If you own a residential rental property as an individual, the rent and related amounts go into your own tax return. The ATO expects you to declare everything you receive for letting, leasing or licensing the property, including properties overseas. That covers long-term tenancies, short-term and sharing-platform stays, renting out a room in your home, and arrangements with family or friends.

Rental income is wider than the weekly rent. Depending on what happens during the year, it can also include:

• bond you keep instead of rent or to cover damage
• cancellation or booking fees you retain
• insurance payouts for lost rent or for damage to the property
• amounts a tenant pays you to cover repairs, and government rebates for buying a depreciating asset such as a solar hot water system

Timing follows the tenant, not your bank account. Rent is income in the year the tenant pays it to you or to your property manager, even if the agent passes it on in the next financial year. You report the gross rent before agent fees, then claim those fees as an expense.

Income and expenses are split according to legal ownership. If you own 50% of the property, you declare 50% of the rent and generally claim 50% of the costs. Where a property is rented to family or friends below market rent, the ATO expects deductions to be apportioned and accepts limiting them to the rent received, so the property shows no net profit or loss.

Expenses: what is claimed now and what is claimed over time

Deductions for a residential rental generally fall into three groups: costs you claim in the year you pay them, depreciating assets you claim over their effective life, and capital works claimed over decades. The category decides when, and how quickly, a cost reduces taxable income.

If you do repairs yourself, you can claim the materials but not the value of your own labour. If a loan was used partly for private purposes, such as buying a car, only the rental share of the interest is deductible, and that split continues for the life of the loan. A quantity surveyor's report is often used to list the depreciating assets and construction costs when a property is bought.

Holiday homes have a stricter rule: interest, repairs and other ownership costs are not deductible unless the property is used, or held for use, mainly to earn rent. Our rental property tax guide covers deductions in more detail.

Negative gearing in 2026–27 and the change from 1 July 2027

A property is negatively geared when the borrowing costs and other expenses of holding it are more than the rent it earns. For 2026–27 the existing rules continue: a net rental loss is worked out in your return in the usual way.

On 12 May 2026, in the 2026–27 Federal Budget, the Government announced reforms to negative gearing and capital gains tax. The ATO now states that these measures are law. The Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 passed both Houses on 25 June 2026 and received assent on 26 June 2026 (Act No. 49 of 2026). According to the ATO, from 1 July 2027:

• negative gearing for residential property investments is limited to new builds
• properties held at the time of the announcement, 7:30pm AEST on 12 May 2026, are exempt from the negative gearing change

The ATO's summary page does not yet set out the detailed mechanics, such as exactly how a "new build" is defined or how affected losses are treated, so check the ATO's page on the reform for updates. For anyone who bought, or is about to buy, an established residential property after the 12 May 2026 cut-off, the purchase date and contract records will matter.

Net rental losses also flow into other income tests. Your income for Medicare levy surcharge purposes and your HELP repayment income both add back net rental property losses, so a loss can reduce tax without reducing those amounts.

For 2026–27 the current negative gearing rules still apply. The limit to new builds starts on 1 July 2027, and residential properties held at 7:30pm AEST on 12 May 2026 are exempt.

Capital gains tax when you sell

Selling a rental property generally triggers a CGT event. Capital gains tax is part of income tax rather than a separate tax, so a net capital gain is reported in your return and taxed at your individual rates. For property sold under a contract, the CGT event happens on the contract date, not at settlement, which decides the financial year the gain falls into.

For sales in 2026–27, the 50% CGT discount still applies, because the CGT changes start on 1 July 2027. The ATO has also confirmed that the Budget CGT changes do not affect returns lodged at Tax Time 2026. Generally, an individual can halve the gain if the property was owned for at least 12 months (not counting the day of purchase or the day of the CGT event) and they are an Australian resident for tax purposes. Capital losses are applied before the discount. Foreign and temporary residents cannot use the full discount on gains made after 8 May 2012.

From 1 July 2027, under the same 2026 Act, the 50% discount for individuals, trusts and partnerships is replaced with cost base indexation and a 30% minimum tax rate on capital gains. The ATO states that the CGT reforms only apply to gains that accrue after 1 July 2027, so the gain built up before then is not affected.

Our capital gains tax guide explains cost base, losses and the discount step by step.

Renting out your former home

If a property was your home first and you move out and rent it, you can choose to keep treating it as your main residence for CGT purposes for up to 6 years (often called the 6-year rule). The 6-year period applies separately to each absence. While you make that choice, no other property can be your main residence, apart from an overlap of up to 6 months when moving house. If a home is first used to earn rent within the 12 months before it is sold, the CGT discount is not available.

Records to keep

The ATO requires rental records to be kept for 5 years. Depending on the situation, the 5 years runs from when the return is lodged, from the last decline in value claim for an asset, from when it is certain no CGT event can happen for the property, or from when any dispute with the ATO is resolved. If you have a tax loss or net capital loss, keep the records showing how you worked it out until the amendment period ends for the year the loss is fully used.

In practice, that means keeping:

• purchase records: contract, settlement statement, stamp duty, legal and loan establishment costs
• property manager statements and bank records showing the rent received and any bond kept
• loan statements showing the interest charged, and records of any private use of the loan
• invoices for repairs, rates, insurance, strata levies and land tax
• a depreciation schedule or quantity surveyor report, and records of improvements
• records of when the property was your home, rented or vacant, and the sale contract when you sell

Records can be paper or digital, as long as copies are true and clear. Our record keeping guide has more on what the ATO accepts.

How Ross Accounting helps property investors

We prepare individual tax returns that include rental schedules for one or more properties, work through interest, repair and depreciation claims, and calculate capital gains when a property is sold. Principal David Ross has a background in banking and mortgage finance, which is useful context when a loan has been refinanced, split or used partly for private purposes.

Before you buy or sell, a tax planning meeting can look at ownership, timing and records, especially with the 1 July 2027 changes ahead. Our team also includes a solicitor, Geoff Versace, who practises from our offices and handles conveyancing, and a mortgage broker, Greg Kearns, for loans.

This page is general information only and does not take your circumstances into account. For advice about your own property, contact us or see what new clients need.

Frequently asked questions

General information only, not personal advice. Tax rules change and your circumstances matter, so talk to us before acting. See our disclaimer.