Income earned from renting out a property in Australia is considered taxable and must be declared in your annual tax return. The taxable amount is your total rental income minus allowable expenses and deductions. Here’s a detailed guide:
Tax on Rental Income in Australia
Table of Contents
1. How Rental Income is Taxed
Rental income is added to your total taxable income and taxed at your marginal tax rate, according to Australia’s progressive tax system.
| Taxable Income | Tax Rate |
|---|---|
| $0 – $18,200 | 0% (tax-free threshold). |
| $18,201 – $45,000 | 19% of income over $18,200. |
| $45,001 – $120,000 | $5,092 + 32.5% of income over $45,000. |
| $120,001 – $180,000 | $29,467 + 37% of income over $120,000. |
| $180,001 and above | $51,667 + 45% of income over $180,000. |
2. What Counts as Rental Income?
Rental income includes:
| Type of Income | Examples |
|---|---|
| Rent Received | Regular payments from tenants. |
| Bond Forfeited | Retained bonds for damages or unpaid rent. |
| Insurance Payouts | Payments for loss of rental income. |
| Reimbursements | Payments from tenants for property expenses. |
| Other Payments | Booking fees, letting fees, or services provided to tenants. |
3. Allowable Deductions
You can claim deductions for expenses directly related to renting out your property.
| Expense Type | Examples |
|---|---|
| Loan Interest | Interest on a mortgage for the rental property. |
| Property Management Fees | Payments to real estate agents. |
| Repairs and Maintenance | Fixing damages (e.g., plumbing, electrical work). |
| Depreciation | Wear and tear on assets like appliances and furniture. |
| Insurance Premiums | Landlord insurance or building insurance. |
| Council Rates and Utilities | Water, electricity (if not paid by tenants), and council rates. |
| Advertising Costs | Expenses incurred to find tenants. |
| Travel Expenses | Costs for inspecting or maintaining the property (conditions apply). |
4. Capital Gains Tax (CGT) Implications
If you sell your rental property, you may be liable for Capital Gains Tax (CGT) on the profit made from the sale.
- Exemptions:
- The property was your primary residence for part of the ownership period.
- CGT discount of 50% applies if the property was held for over 12 months (for residents).
5. Depreciation Deductions
You can claim depreciation for:
- Plant and Equipment: Assets like carpets, air conditioners, and appliances.
- Capital Works: Construction costs of the building (e.g., walls, floors).
Depreciation schedules from quantity surveyors can maximize your claims.
6. Record-Keeping Requirements
To substantiate your claims, keep records of:
| Type of Record | Examples |
|---|---|
| Rental Income | Lease agreements, rent receipts, or bank statements. |
| Expenses | Invoices, receipts, and statements for allowable deductions. |
| Ownership and Purchase | Property title deeds and loan agreements. |
| Capital Improvements | Records of renovations and upgrades to the property. |
7. Tax Obligations for Non-Residents
Non-residents who earn rental income in Australia are subject to:
- No tax-free threshold.
- Rental income taxed at a minimum 32.5% from the first dollar.
8. Tax on Rental Income in Australia FAQs
- Is rental income taxed separately?
No, it is added to your total taxable income and taxed accordingly. - Can I claim losses on rental income?
Yes, negative gearing allows you to offset rental losses against other income. - Do I pay GST on rental income?
No, residential rental income is GST-free. - What if my property is vacant?
You can claim deductions for the period it was genuinely available for rent. - Can I claim renovations as deductions?
No, major renovations are considered capital expenses and are claimed through depreciation or added to the cost base for CGT purposes.
Proper management of rental income and deductions can significantly reduce your tax burden while ensuring compliance with the ATO’s regulations.