1. How rental income is taxed

Rental income is added to your other income (salary, business income, dividends) and taxed at your marginal tax rate. The current rates for 2025-26 are:

• $0 to $18,200: 0% (tax-free threshold)
• $18,201 to $45,000: 16%
• $45,001 to $135,000: 30%
• $135,001 to $190,000: 37%
• Over $190,000: 45%

Plus the Medicare Levy of 2%. Taxable rental income is your gross rent minus allowable deductions.

1.1 What counts as rental income

Everything a tenant or guest pays you: rent, bond money you keep, insurance payouts for lost rent, and any reimbursements for expenses. For short-term lets, the gross amount shown on your Airbnb, Booking.com, or Stayz statement (before platform fees) is the taxable figure.

1.2 Platform reporting

Since January 2024, all major platforms report your income directly to the ATO under the Sharing Economy Reporting Regime (SERR). The ATO receives your name, ABN/TFN, total income, number of bookings, and property addresses. There is no room for underreporting.

2. Allowable deductions

Deductions reduce your taxable rental income. The ATO allows you to claim expenses that are directly related to earning rental income.

2.1 Immediate deductions

• Mortgage interest: the interest portion of your loan repayments (not the principal). This is typically the largest deduction.
• Property management fees: agent fees, Airbnb host service fees, property manager commissions.
• Insurance: landlord insurance, building insurance, public liability.
• Council rates and water charges.
• Repairs and maintenance: fixing what is broken (not improvements). Repainting, plumbing repairs, replacing a broken appliance with a like-for-like equivalent.
• Cleaning: between guests or tenants.
• Advertising: listing fees, professional photography.
• Body corporate fees.
• Land tax.
• Accounting fees for preparing rental income tax returns.
• Travel costs for inspecting or managing the property (subject to restrictions since 2017 for residential properties).

2.2 What you cannot deduct

• The purchase price of the property.
• The principal (capital) portion of loan repayments.
• Costs that are capital improvements (adding a deck, renovating a kitchen). These are added to your cost base for CGT purposes.
• Personal use costs if the property is partly for personal use (must be apportioned).

For more on what platform fees look like, see our guide to Airbnb hosting fees in Australia.

3. Negative gearing

Negative gearing is when your rental expenses exceed your rental income, creating a loss. In Australia, you can offset that loss against your other income (salary, business income), reducing your overall tax bill.

3.1 How it works

If your rental property earns $30,000 per year but your mortgage interest, rates, insurance, and other expenses total $40,000, you have a $10,000 rental loss. If you earn $100,000 in salary, your taxable income drops to $90,000. At a 30% marginal rate, that saves you $3,000 in tax.

3.2 Positive gearing

If your rental income exceeds expenses, the profit is added to your taxable income. This is positive gearing. You pay tax on the profit at your marginal rate, but you are making money overall.

3.3 Is negative gearing a good strategy?

Negative gearing reduces your tax bill but it means your property is costing you money to hold. The strategy relies on capital growth to compensate for the ongoing cash loss. It works best when property values are rising and you have high-income employment to offset against. Professional advice is essential before relying on this strategy.

4. Depreciation

Depreciation lets you claim a deduction for the decline in value of the building and its contents over time, even though you are not spending money. It is one of the most valuable and most overlooked deductions for property investors.

4.1 Capital works (Division 43)

The building structure itself depreciates at 2.5% per year over 40 years (for properties built after September 1987). On a $400,000 construction cost, that is $10,000 per year in deductions.

4.2 Plant and equipment (Division 40)

Fixtures, fittings, and appliances (carpets, blinds, hot water systems, air conditioning) depreciate at their individual effective life rates. For properties purchased after 9 May 2017, plant and equipment deductions on previously used assets in residential properties are restricted to the owner who initially installed them. New assets can still be claimed.

4.3 Getting a depreciation schedule

A quantity surveyor prepares a depreciation schedule for your property. It costs $300 to $800 (itself a deductible expense) and typically identifies $5,000 to $15,000 in first-year deductions. The schedule covers the life of the building and is one of the best investments a property owner can make.

5. Capital Gains Tax

When you sell a rental property, you pay Capital Gains Tax (CGT) on the profit. The gain is your sale price minus your cost base (purchase price plus stamp duty, legal fees, and capital improvement costs).

5.1 The 50% CGT discount

If you have held the property for 12 months or more, you receive a 50% discount on the capital gain. A $200,000 gain becomes $100,000 for tax purposes. This discount is a major incentive for long-term property investment.

5.2 Principal place of residence

If the property was your main residence for the entire period of ownership, CGT does not apply. If it was your home for part of the time and a rental for the rest, the gain is apportioned.

5.3 ATO Draft Ruling TR 2025/D1

Released in November 2025, this draft ruling takes a stricter approach to deductions for holiday homes and mixed-use properties. If personal use dominates, ownership costs (interest, rates, insurance) may be reduced or denied. Properties must be "genuinely available for rent" to claim full deductions. Transitional relief applies for arrangements entered before 12 November 2025. Watch for the final ruling before lodging your 2025-26 return.

6. GST and state taxes

6.1 GST

Standard residential rental income is input-taxed (GST-free). You do not charge GST on rent. GST applies only if you supply commercial residential premises (hotel-like services) and your turnover exceeds $75,000.

6.2 Land tax

Each state charges land tax on investment properties above a threshold. Rates and thresholds vary significantly by state. Land tax is a deductible expense against rental income.

6.3 State levies

Victoria introduced a 7.5% short stay levy from January 2025 on bookings under 28 nights. The ACT introduced a 5% levy from July 2025. These are collected from guests by platforms and do not reduce your payout, but they increase the total cost to guests and may affect booking conversion. For more on the Victorian levy, see our guide to Melbourne short-term rental rules.

6.4 Stamp duty

Stamp duty (or transfer duty) is paid when you purchase an investment property. It is not deductible as an expense but is added to your cost base for CGT purposes. Rates vary by state.

7. Short-term vs long-term letting: tax differences

The ATO treats income from Airbnb and standard tenancies the same way: both are rental income, both allow the same deductions. The practical differences are:

• More deductible expenses with short-term: cleaning costs per turnover, platform fees, linen, toiletries, and professional management fees are all higher and all deductible.
• Apportionment: if you use the property yourself and also let it on Airbnb, you must apportion expenses between personal and rental use. Only the rental portion is deductible.
• Higher gross income potential: short-term lets typically generate higher gross revenue but with higher expenses. The net position depends on occupancy and management quality.

For a full breakdown of what short-term letting costs, see our guide to costs of running a holiday let. For management fee comparisons, see our guide to property management fees in Australia.