How tax works for rental income

The moment rental income starts hitting your account, it also enters the tax system. While Australia's property tax rules aren’t designed to be intimidating, the details can get tricky as the outcomes often depend on how the property is structured and owned.

Understanding how you get taxed on rental income makes it much easier to manage your investment confidently and avoid surprises when it's time to file your returns.

In Australia, rental income isn’t taxed at a separate rate. Instead, it forms part of your overall assessable income and is taxed according to the entity that owns the property.

Rental income is taxed at the owner's marginal tax rate, as part of their personal tax return. If the property is co-owned, each owner returns their legal share of the rental income and expenses.

Rental profit (or loss) is treated as company income and taxed at the applicable company tax rate (25% for base rate entities, 30% for standard rate companies).

A discretionary trust generally passes rental income through to its beneficiaries who are taxed at their individual marginal rates. If income is retained by the trust (i.e. not distributed), it’s taxed at 45%.

Important: Non-resident withholding tax (NRWT) does not apply to the rent you receive. However, if you have an investment mortgage with an overseas lender, NRWT may apply to the interest paid on that loan. 

GST treatment depends on whether the property is residential or commercial, and how it is used. 

A common question landlords ask is “does rent include GST?” and for long-term rentals, the answer is no because this type of rent is input-taxed (GST-free). This means you don’t charge GST on the rent you receive. You also can't claim GST on expenses related to providing that property for rent.

If you provide short-stay accommodation (such as Airbnb), the income is usually still considered residential property and input-taxed (GST-free), meaning you don’t charge or claim GST. However, if the property use crosses over into commercial residential property and starts to resemble a motel or boutique hostel type of operation then GST regulations may apply.

Please note: Victoria and Australian Capital Territory have additional levies for short-stay accommodation which are generally handled automatically by digital booking platforms.

Renting out commercial property (e.g. offices, shops, warehouses) is generally subject to 10% GST if the owner is GST registered or required to be registered. In this case, you must charge GST on the rent and claim GST on related expenses. When selling the property to another GST-registered person or business for a taxable activity, the sale might be considered a going concern and potentially be GST-free.

The ATO allows you to claim expenses that are directly connected to earning that rental income. In practice, these are the ongoing costs associated with keeping the property available and generating income.

You can generally claim:

You can’t claim:

A useful rule of thumb is that if the expense relates to maintaining the property as a rental, it's usually deductible. If it’s related to buying, selling or personal use, it generally isn't. 

At the end of the financial year when both rental income and expenses have been accounted for, your property will either make a profit or a loss. 

If your total deductible expenses exceed your rental income (i.e. a tax loss), the property is known to be negatively geared. This means rental losses can be offset against other income (such as salary or business earnings), reducing your overall tax bill. 

As part of the 2026 Federal Budget, the Australian Government has announced changes to negative gearing rules. From 1 July 2027, negative gearing will be restricted to eligible new builds acquired after budget night (7.30pm 12 May 2026). This means rental losses on established residential properties acquired after this date can no longer be offset against other income types. Instead, these losses can only be offset against future rental profits and not salary/wages.

Those who held investment properties prior to budget night will retain negative gearing access.

Capital Gains Tax applies when an investment property is sold or disposed of for a profit. This is based on the sale price minus the property’s cost base (i.e. purchase price plus any buying/selling costs like stamp/transfer duty, legal and agent fees). If the property sold at a loss, your capital loss can be offset against other capital gains.

This is another area of tax law that has changed as part of the last Federal Budget.

For existing property portfolios, arranging an independent registered valuation as at 1 July 2027 will be critical for establishing a clear cost base boundary and ensuring pre-reform capital growth is protected under the 50% discount.

While CGT isn't something you deal with annually like income tax, it plays a major role in the overall return on your property investment.

At the end of each financial year, you must declare all rental income and deductible expenses as part of your tax return.

Since the ATO automatically cross-checks records through data-matching with banks and rental platforms (especially short-stay ones like Airbnb), keeping accurate records and receipts for at least 5 years is essential.

To ensure compliance with the ever-changing tax laws, we recommended working with an accountant who keeps up to date with legislation and can help identify any missing deductions or tax optimisation strategies.