Top Tax Traps Landlords Fall Into (and How to Avoid Them)

Written by Julie Jung

Owning an investment property can be a powerful wealth-building strategy—but only if you navigate the tax landscape correctly. At Salt Financial Group, we regularly help landlords avoid common tax pitfalls that can lead to ATO scrutiny, missed deductions, or unexpected bills.

Here are the top traps to watch out for—and how to steer clear of them.

1. Misclassifying Repairs vs Improvements

Not all property expenses are created equal. Repairs (like fixing a leaking tap) are immediately deductible. But improvements (like replacing an entire kitchen) must be claimed over time as capital works.

Tip: Keep detailed records and consult your accountant before claiming large expenses.

2. Overclaiming Loan Interest

Only the interest portion of a loan used for income-producing purposes is deductible. If part of the loan was used for personal expenses—like a holiday or car—you must apportion the interest accordingly.

Trap: Redraw facilities and offset accounts can complicate things. Always document how funds are used.

3. Ignoring Depreciation Deductions

Many landlords miss out on thousands in legitimate deductions by failing to claim depreciation on fixtures, fittings, and structural elements.

Solution: Engage a qualified quantity surveyor to prepare a depreciation schedule. The cost is tax-deductible.

4. Claiming for Personal Use Periods

You can only claim expenses for periods when the property is genuinely available for rent. If it’s used by family or left vacant for personal reasons, deductions must be apportioned.

Reminder: Keep a calendar of rental availability and usage.

5. Poor Record Keeping

The ATO requires detailed documentation for all income and expenses. Missing receipts or vague records can lead to denied claims or audits.

Best Practice: Use digital tools or professional software to track every transaction.

6. Forgetting Land Tax

Land tax thresholds and rates vary by state. In Victoria, for example, the land tax-free threshold for individuals and companies is $50,000.

Tip: If you receive a land tax assessment, please keep the detailed records and provide them to your accountant.

7. Choosing the Wrong Ownership Structure

Whether you own the property as an individual, through a trust, or a company, your structure affects your tax outcomes.

Advice: Speak with a financial adviser before purchasing to ensure your structure aligns with your long-term goals.

8. Missing PAYG Instalments

If your rental income is substantial, you may need to pay tax instalments throughout the year. Missing these could result in penalties or interest charges.

Action: Review your PAYG Instalment obligations regularly and consult your accountant if you expect your financial situation to change significantly.

Tax rules around investment properties are complex—and the ATO is watching closely. But with the right advice and proactive planning, you can maximise your deductions, stay compliant, and boost your returns.

Need help navigating your investment property tax strategy?

Salt Financial Group’s experienced Accountants and Financial Advisers are here to help. Book a meeting with us today and let’s make your property work harder for you.