Rental property is the single most-targeted ATO audit area
Each year the ATO publishes its compliance focus areas. Rental property deductions sit at or near the top of the list every year — the ATO has stated publicly that around 9 in 10 rental returns reviewed contain errors.
If you own even one investment property and you're considering self-lodging via myTax, this guide is for you.
The short version: most rental property owners benefit from Registered Tax Agent lodgement because the rules are nuanced, the deduction list is long, and the audit risk is concentrated here. a registered tax agent (see the directory)
What ATO catches most often on rental returns
1. Interest on the wrong loan amount
Interest is only deductible to the extent the loan was used to acquire or improve the rental property. The ATO catches:
- Redrawn loan funds used partly for personal purposes (you must apportion)
- Refinanced loans where the new lender released equity used for personal spending
- Original purchase loans where any portion went to personal use
If you've ever drawn down equity from the investment-loan facility for non-investment purposes, this triggers the apportionment rules.
2. Capital works (Division 43) vs immediate repairs
The ATO rejects deductions where what's claimed as a "repair" was actually:
- An initial repair (work done shortly after purchase to restore the property — capital, not repair)
- An improvement that goes beyond restoring the original state
- A replacement of a complete entirety (e.g., entire fence, complete kitchen — capital works)
The distinction between "repair" (immediate deduction), "capital works" (2.5% annually over 40 years), and "depreciating asset" (effective life) determines the deduction's timing.
3. Depreciation schedules
Pre-9 May 2017 properties: previous owner's plant & equipment depreciation may still be claimable.
Post-9 May 2017 properties (or properties never income-producing before the second-hand purchase): plant & equipment is not depreciable for residential properties. Capital works depreciation still applies.
Without a quantity surveyor's depreciation report, most owners under-claim significantly. Cost of the report (~AU$500) is itself deductible.
4. Apportionment for part-year rental, personal use, or family discounts
If the property was:
- Rented for only part of the year (you lived in it for some months)
- Rented to family at below-market rates (the deductibility cap is the assessable rental income)
- Available for rent but not actually rented (genuinely on the rental market — deduction continues; not genuinely on the market — denied)
Each of these has specific rules that myTax doesn't walk you through.
5. Capital Gains Tax on sale
When you sell, you trigger a CGT event. The cost base includes:
- Purchase price + stamp duty + legal fees + agent fees
- Improvements (added to cost base; not deducted as repairs)
- Any depreciation previously claimed must be added back to assessable income
- 50% CGT discount applies if held >12 months as resident
Getting the cost base wrong is one of the highest-dollar tax errors made by DIY filers.
Multi-property and negative gearing complications
If you own more than one rental property, or you're negatively geared:
- Each property has its own depreciation schedule, capital works claim, and apportionment
- Negative gearing rules treat the loss as offset against other income — but interest on borrowings to refinance investment activities must be traced carefully
- Land tax (state-by-state) is deductible against rental income; the timing of when paid vs when accrued differs by state
- Vacancy fees in NSW (foreign investor surcharge) and similar state imposts each have their own rules
By the time you have 2+ properties, the combined cost of getting it right in myTax (hours of research + audit risk) easily exceeds professional fee.
What myTax doesn't do well for rental
- It doesn't generate the depreciation schedule for you (you need an external quantity surveyor or carry one forward)
- It doesn't apportion mixed loans for you
- It doesn't flag capital-vs-repair distinctions
- It doesn't walk you through Division 43 vs Division 40 split
- It doesn't precompute CGT on sale
You're responsible for getting all of this right and substantiating it if the ATO asks.
What a Registered Tax Agent does for rental returns
Need a professional? Browse every TPB-registered tax agent near you in the AusTax directory, or post a request and matching practices will contact you — free.
When DIY via myTax might still work
- Single property held for the full year
- Standard interest-only or principal-and-interest loan with no redraws or refinancing
- Property purchased before 9 May 2017 (so plant & equipment depreciation rules are simpler)
- You already have a current quantity surveyor depreciation report
- No CGT events during the year
If all five apply, myTax is workable in a couple of hours of careful entry.
The 5-question rental return audit
Two or more "yes" answers → Registered Tax Agent likely pays for itself many times over.
See the full decision guide if you want to compare paths across multiple complexity factors.
What this guide doesn't cover
This article focuses on residential rental property. Commercial property has different GST, land-tax, and CGT considerations and usually requires either a property-specialist accountant or a Registered Tax Agent with commercial property experience.
AI analysis on this page is general information only and not personal tax advice. Specific rental scenarios benefit substantially from review by a Registered Tax Agent.
Need Help With Your Tax Return?
Complex situation? a registered tax agent (see the directory) Our partner agents review every detail for accuracy and compliance.
*Disclaimer: This is general information only and does not constitute personal tax advice. Consult a registered tax agent for advice tailored to your specific situation. Always verify against the latest ATO guidelines at ato.gov.au.*