Maximising Investment Property Tax Deductions: A Guide for Savvy Investors

Maximising your investment property deductions doesn’t just come down to lodging a few receipts. It’s about strategy—knowing what to claim, how to structure your loans, and when to seek expert help.

Investment properties can be a powerful tool for building wealth, but smart investors know the real magic often lies in what happens at tax time. The Australian Taxation Office (ATO) allows a range of deductions for property investors, which can significantly reduce your taxable income and improve cash flow—if managed correctly.

From maintenance costs and depreciation to the often-overlooked importance of your loan structure, this article will walk you through how to maximise your deductions and why expert financial guidance, especially from a mortgage broker, is essential in getting it right.

Why Investment Property Deductions Matter

Owning an investment property is not just about rental income and capital growth—it’s also about managing expenses and maximising tax benefits. Many investors unintentionally leave money on the table by failing to claim all eligible deductions or by structuring their loans incorrectly.

Tax deductions reduce the amount of taxable income you report to the ATO. For property investors, that means lower annual tax bills and potentially greater returns on your investment.

Common Tax-Deductible Expenses for Investment Properties

Let’s start by identifying the key areas you can claim as deductions:

1. Loan Interest

The interest portion of your investment property mortgage is fully tax-deductible. It’s critical to note that only the interest—not the principal repayments—can be claimed. If your loan is mixed-purpose (used partly for personal reasons), only the investment portion is deductible.

2. Property Management Fees

If you use a real estate agency or property manager to look after your rental, their fees are deductible. This includes tenant screening, lease renewals, inspections, and administration.

3. Repairs and Maintenance

Costs incurred for repairs to restore items to their original condition—such as fixing a leaking tap or replacing broken tiles—are tax-deductible in the same financial year. However, improvements (like a full kitchen renovation) are considered capital works and depreciated over time.

4. Depreciation

You can claim depreciation on both the building (capital works deduction) and eligible plant and equipment (like air conditioning, carpets, and appliances) depending on the age and condition of the property.

To maximise this deduction, investors often engage a Quantity Surveyor to prepare a Tax Depreciation Schedule. This document outlines exactly what can be claimed over the life of the property and can result in thousands of dollars in tax savings annually.

5. Council Rates and Utilities

Council rates, water charges (if paid by the landlord), and land tax (if applicable in your state) are all deductible. Be careful with utilities, though—only landlord-paid expenses are deductible.

6. Insurance

Landlord insurance, building insurance, and contents insurance (if you furnish the property) are deductible.

7. Advertising for Tenants

Costs associated with advertising your property to find a tenant are fully deductible, including online listings, signage, and real estate agent fees.

8. Legal and Accounting Fees

If you engage a solicitor for tenancy-related matters or use an accountant to manage your rental income tax return, those professional fees are deductible.

9. Strata Fees

If your property is part of a body corporate, your strata levies are deductible—excluding any special levies for capital improvements.

Capital Works vs Repairs: What’s the Difference?

One of the common areas where investors get tripped up is distinguishing between repairs and capital improvements.

• Repairs (fixing an existing issue) are deductible immediately.

• Capital improvements (installing something new or enhancing the property’s value) must be depreciated over several years.

For example:

• Fixing a broken fence = immediate deduction.

• Replacing an entire fence with a new design = depreciated over time.

Understanding this distinction ensures you're claiming appropriately and staying compliant with ATO guidelines.

Prepaid Expenses

You can prepay up to 12 months of some deductible expenses and claim them in the same financial year. This includes:

• Loan interest (if allowed by your lender),

• Insurance premiums, and

• Subscriptions to property investment-related publications.

This strategy is particularly useful if you have higher-than-normal income in a given year and want to reduce your taxable income.

Travel Expenses: No Longer Deductible

It’s worth noting that as of 1 July 2017, investors were no longer claim travel expenses related to inspecting, maintaining, or collecting rent for residential investment properties. This was a major change that caught many off guard and is still often misunderstood and we still here customers talking about this 'opportunity' as a perk.

Importance of Loan Structure: Don’t Miss the Hidden Deductions

Now that we've covered what you can deduct, it's time to look at how your loan is structured—because this can make or break your tax effectiveness.

1. Interest-Only vs Principal & Interest Loans

Many investors opt for interest-only loans during the early stages of property ownership. Why? Because:

• The full interest is tax-deductible.

• It reduces out-of-pocket cash flow in the early years.

• It frees up capital to invest elsewhere.

However, this strategy must align with your overall financial goals and investment timeline. Principal & interest loans reduce your debt over time, but the repayments are higher and the deductible portion is lower.

2. Avoid Mixed-Purpose Loans

If you redraw funds from your investment loan for personal use—such as holidays, cars, or even paying off your own home loan—you risk making part of the loan non-deductible. The ATO will expect you to apportion interest deductions accordingly, which can be messy and unfavourable.

Keep your investment loans and personal loans separate to ensure clear deductibility and make accounting far simpler.

3. Offset Accounts vs Redraw Facilities

Using an offset account instead of a redraw facility can preserve your loan’s deductibility. This is particularly important if you plan to convert your principal place of residence into an investment property later. Funds in an offset account reduce interest without altering the loan’s purpose—unlike redraws, which are considered new borrowings and must be traced.

Why You Need a Mortgage Broker (and Not Just Any Broker)

Tax deductions are one side of the equation—getting the loan structure right is the other. And this is where working with an experienced mortgage broker can make a real difference.

Here’s why:

1. Loan Structuring Expertise

A good broker doesn’t just get you a good rate—they help structure your loans properly. They’ll guide you on splitting loans, choosing between fixed or variable rates, setting up offset accounts, and using equity responsibly.

2. Tax-Smart Lending Strategies

An experienced broker understands the impact of loan structuring on tax deductions. They’ll help ensure you don’t accidentally compromise your deductibility or mix personal and investment funds.

3. Access to Specialist Lenders

Not all lenders cater to property investors, particularly those with multiple properties or complex structures like trusts and SMSFs. A broker gives you access to lenders with favourable policies and flexible loan features that align with your investment strategy.

4. Forward Planning

The right broker won’t just look at today’s loan—they’ll help you plan for tomorrow. This includes managing future investment purchases, understanding tax-time impacts, and preparing for changes in income or family circumstances.

5. Support for Professional Collaboration

Brokers can also work hand-in-hand with your accountant or financial adviser to ensure your lending strategy supports your broader financial goals.

Common Mistakes to Avoid

Here are a few pitfalls to watch for:

• Not claiming depreciation – especially for newer properties.

• Using redraw for personal expenses – complicates deductibility.

• Incorrect loan structuring – mixing personal and investment funds.

• Overlooking insurance premiums – all landlord and building insurance should be claimed.

• Forgetting to lodge a tax return for losses – negative gearing only benefits you when reported correctly.

  
  

Final Thoughts: Knowledge is Power, but Advice is Gold

Maximising your investment property deductions doesn’t just come down to lodging a few receipts. It’s about strategy—knowing what to claim, how to structure your loans, and when to seek expert help.

Tax legislation changes, property markets shift, and what worked two years ago might not be your best move today. That’s why surrounding yourself with a qualified accountant and a knowledgeable mortgage broker is vital.

Get the structure right from the start, and let your investment property work harder for you—both in the market and at tax time.

Need Help with Investment Loan Structuring?

At Etairos Finance, our brokers are experienced in working with property investors. We understand the nuances of investment lending and will tailor a loan strategy that maximises your returns while preserving deductibility.

Contact us today for a free consultation—and take the first step toward smarter investing.