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Tax Traps for Property Investors Posted on October 9, 2018

However, many first time investors dive straight in without getting property advice and sometimes don’t understand the mistakes until it’s too late. As we have flagged in previous articles, the ATO is increasing their audit activities and investors should seek advice.

Do I need to worry?

With about 1.7 million taxpayers claiming negative gearing deductions, rental property is a point of focus for the Tax Office. Late last year it was announced it would contact as many as 100,000 rental property owners this financial year, who might have incorrectly claimed tax deductions. So, yes, if you’re not 100 per cent sure of your claims, you could have cause for worry.

What sort of mistakes are they looking for?

Incorrectly claiming interest deductions

What many people don’t understand is deductibility is determined by use of the borrowed money rather than the security provided. Interest on funds borrowed for private purposes is not deductible, no matter what is used as security. For example, let’s say Mike owns his home outright. He decides to rent it out and borrows to buy a new one using his old home as security.

In this case, the money borrowed to buy the new home is for private purposes and therefore the interest is not deductible, despite the fact that the property used as security is now rented out.

Another common error is claiming loan repayments as an interest deduction. Deductibility is limited to the interest part of the loan repayment, unless it is an interest-only loan. Voluntary advance payments towards the principal are also not deductible.


Repairs and depreciation claims can also cause problems. While expenses incurred in the maintenance and repair of a rental property are generally deductible, improvements are regarded by the Tax Office as a capital cost. Also repairs to a recently acquired rental property are also treated as capital expenditure and are non-deductible.

However, the cost of initial repairs may be included in the building cost and are eligible for deductions at 2.5 per cent a year. They may also be taken into account when working out any capital gains when the property is sold. 

While there are many investment opportunities for property investors, it is a strong recommendation to receive advice first. Should you be looking to purchase a property inside or outside of superannuation within the next 12 months, click here to contact us to arrange a complimentary appointment to discuss the best way to structure.

Should you be interested in learning more about the current property climate, register for Robson Partners upcoming Pacific East Coast Property seminar by logging onto

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Discover the difference that the right advice can make

Get in touch with our team today and learn how you and your business can grow to the next level. 

be better off.

talk to us Discover the difference that the right advice can make

Get in touch with our team today and learn how you and your business can grow to the next level. From structuring to sustainability, we'll help you reach your financial goals and live the lifestyle you deserve.

be better off.