Folio 1 · The income and expense account
Rental income and deductions
The ATO says you declare all the income you receive from renting, leasing or licensing your property, in the year the tenant pays it, and in line with your legal share of the property. Against that income, it sorts expenses into three groups: those claimed in the year you incur them, those claimed over several years, and those that can’t be claimed.
General information, not tax advice. These are the ATO’s rules in plain words, with its pages listed at the foot of this page; for how they apply to you, the ATO’s Rental properties guide 2026 and its residential rental properties pages are the place to check.
- Folio
- 1 of 6
- Rules
- Australian Taxation Office (federal)
- Pages
- Rental income you must declare; Rental expenses; Rental properties guide 2026
- Checked against the sources on 8 October 2026
The account, both sides
Set out as a ledger, a year of renting looks like this. The rent side is what the ATO lists as rental income and related payments; the expense side is its three categories.
Rent side: declared as income
- Rent from the tenant, paid to you, your agent or a property manager
- Short-term rentals, and renting through a sharing platform
- Renting part or all of your home
- Renting to family and friends, at market rates or below
- Bond money kept in place of rent, or because of damage
- Insurance payouts for damage or for loss of rent
- Payments from a tenant to cover repairing damage
Expense side: three columns
- This year: for example, loan interest, council rates, repairs and maintenance, and depreciating assets costing $300 or less
- Over several years: capital works, borrowing expenses, and the decline in value of depreciating assets costing more than $300 (capital works only for a property built after 17 July 1985, and only once construction is complete)
- Not at all: personal expenses, some capital expenses, and the purchase of second-hand depreciating assets after 9 May 2017
When, and whose, the income is
Rent is declared in the year the tenant pays it. Where the tenant pays an agent or property manager, the ATO counts it in the year the tenant pays them, not when the money is passed on to you. The figure declared is the gross rent, before the manager’s fees and any expenses they paid on your behalf are taken out.
Income follows legal ownership. The ATO’s example: if you own 50% of a property, you declare 50% of the rental income. Expenses are attributed the same way, to each co-owner according to their legal interest.
Costs before the first tenant
Interest, council, water and sewerage rates, land tax and emergency service levies incurred before the property is rented can be claimed, the ATO says, provided you are holding it to produce rental income. If the land is vacant under the ATO’s vacant land rules, though, holding costs like these generally can’t be claimed for the time before the property can be lived in and is held to earn rental income. The ATO says evidence of that, such as your communications with real estate agents or rental managers, must be kept. If you decide not to rent it out, for example to use it privately, you are no longer holding it to produce rental income.
A repair, or something else
The ATO describes repairs as work to keep the property in a tenantable condition, or to fix wear and tear or damage that happened while it was rented. Its examples of repairs claimable at once include replacing a cracked window pane, part of a gutter or part of a fence.
Three kinds of work the ATO treats as capital in nature rather than as a repair, so none of them is claimed at once:
- Initial repairs, for defects that existed when you bought the property; the ATO’s capital gains page lists these among the costs added to the cost base
- Improvements, anything that makes part of the property better, more valuable or more desirable, or changes its character
- Replacing an entire item, such as a whole toilet: the ATO treats that as capital works, not a repair
Where repairs and improvements are done together, the repair part can be claimed only if its cost can be separated from the improvement. The capital works and depreciating asset rules have their own ATO pages: capital expenses and depreciating assets in rental properties.
When the property is only partly rented
If the property is rented for only part of the year, used privately for part of it, only partly rented, or rented below market rates, the ATO says expenses are apportioned on a fair and reasonable basis, usually by time or by floor area, or both. These are its two formulas:
By time. (days used to produce income + days held to produce income) ÷ days in the income year you owned the property × expenses
Days held to produce income are days the property was empty but available to rent on commercial terms. A room in your own home doesn’t count as available on the days it is empty.
By area. (A + B ÷ 2) ÷ C × expenses
A is the floor area only the tenant occupies, B the floor area of the common areas, and C the floor area of the whole property, as the ATO works it in its own example.
Costs that relate only to renting, such as advertising for tenants and real estate commission, are not apportioned: the ATO says they are fully deductible in the year they are incurred.
Renting to family or friends below the market rate has its own treatment. Where the expenses would exceed the rent, the ATO accepts limiting the deductions to the rent received, so there is no net rental income or loss. Rented at the market rate, the expenses don’t need apportioning, and the ATO says you will need evidence of how the market rate was worked out.
Investor or business?
The ATO says most owners, even those with more than one rental property, are investors rather than in the business of letting rental properties, because they have minimal involvement and rely on income from other sources, like their job. Some rules, such as the travel rule on the front page’s ledger, turn on that difference.
Two rules that catch people out
A contractor without an ABN. The ATO says that if a contractor working on your rental doesn’t give you their Australian business number, you may have to withhold 47% from the payment and send it to the ATO, and that you may not be able to claim the expense if you didn’t withhold when required.
A loan used partly for private things. Interest on the part of a loan used for private purposes, such as buying a car, can’t be claimed, and neither can interest for any period the property is used privately, even a short one.
Where it goes in the return
In myTax, the ATO says rental income from an Australian property goes under “You had Australian interest, or other Australian income or losses from investments or property”, and income from an overseas property under “Other foreign income”. The expenses go in the rental expenses fields once the property details and income are entered. When expenses are larger than the income, the result is a rental loss: folio 6 covers what the ATO says happens to it.