Investment Property Tax in Queensland, Explained

Most investment property tax comes down to three areas: your annual deductions, depreciation, and capital gains tax when you sell.

Annual deductions are the running costs of holding the property, including loan interest, council rates, insurance and property management fees. Depreciation is the tax write-off for the building itself and certain assets inside it. Capital gains tax kicks in when you sell for more than your cost base, with a 50% discount if you've held for over 12 months.

This guide is written for Queensland investors who want to understand how investment property tax deductions actually work in practice, and where the loan sits inside that picture. It's general information only, not personal tax advice. Before you claim anything, talk to a registered tax agent or accountant. The loan side is our patch, and you can read more about investment property loans in Queensland.

Negative gearing means the property costs more to hold than it earns. Positive gearing is the opposite. The loss or profit gets factored into your taxable income for the year.

A simple example. Say you own a Brisbane rental earning $30,000 a year in rent. Your loan interest and running costs come to $38,000. That's an $8,000 shortfall. Under negative gearing in Australia, that $8,000 loss can be offset against your other income (wages, business income) at your marginal tax rate. If you're on a 37% marginal rate, that loss saves you $2,960 in tax. You're still $5,040 out of pocket in cash terms, but the property's growing in value in the background. That's the bet.

Positive gearing flips it. Rent covers all costs and leaves a profit, which gets added to your taxable income and taxed at your marginal rate. Neutral gearing sits in the middle, roughly break-even.

Which one suits you comes down to income, cash flow and goals. High-income earners often lean toward negatively geared growth properties. Retirees or those chasing income favour positively geared ones. Loan structure matters here too, especially with an interest-only investment loan, which changes cash flow without changing the underlying asset.

Here's the shortlist of common rental property tax deductions and how they're generally treated. Your accountant will confirm what applies to your situation.

The repairs versus improvements line trips up plenty of investors. Replacing a broken tap is a repair. Ripping out the kitchen and putting in a new one is a capital improvement, and the cost goes into the depreciation schedule rather than this year's return. If you're wondering what you can claim on an investment property in a specific scenario, that's a conversation for your accountant.

Depreciation is the non-cash deduction most investors underuse. It's split into two divisions under ATO rules.

Division 40 covers plant and equipment. Ovens, dishwashers, carpets, blinds, air conditioners, hot water systems. Assets with a limited effective life that depreciate at different rates.

Division 43 covers capital works. The building itself. Bricks, concrete, roofing, permanent fittings. Per the ATO, capital works deductions can be claimed for 25 years where the rate is 4%, and for 40 years where the rate is 2.5%. Eligible build-to-rent developments may increase the capital works rate from 2.5% to 4% per year from 1 January 2025.

The 2017 rule to know. For individual investors buying an established residential property, second-hand plant and equipment (previously used items already in the property) is generally no longer deductible. Division 43 capital works on the building still applies. New properties are treated differently, which is why depreciation is often a bigger deal on newer builds.

Why the quantity surveyor matters. A depreciation schedule from a qualified quantity surveyor identifies every eligible asset and puts a dollar value on the annual deduction. For a newer property, that can be several thousand dollars a year in extra rental property tax deductions. The schedule fee is itself deductible.

Capital gains tax on an investment property is calculated on the difference between your sale price and your cost base.

Cost base includes:

• Original purchase price
• Stamp duty and legal costs at purchase
• Capital improvements over the years
• Selling costs (agent fees, legal fees)

A quick example. You buy a Gold Coast unit for $650,000 and sell 14 months later for $870,000, after $20,000 of selling costs. Your gross gain (simplified) is roughly $200,000. Because you've held for more than 12 months as an Australian resident individual, the ATO's 50% CGT discount applies. Only $100,000 gets added to your taxable income for that financial year and taxed at your marginal rate.

The main residence exemption. If a property has been your principal home, the main residence exemption can reduce or eliminate CGT. The six-year rule allows you to treat a former home as your main residence for up to six years while it's rented out, in certain circumstances. It's fiddly, and worth an accountant's eyes.

A warning on capital works. Capital works deductions you've claimed over the years may reduce your cost base when you sell, which increases the gain. That's not a reason to skip the deduction. Just a reason to know what's coming.

CGT on an investment property is one of the areas where good record-keeping (all receipts, all improvement costs) saves real money years down the track.

Queensland land tax is assessed on the taxable value of Queensland freehold land you own at midnight on 30 June each year.

For individuals, land tax applies when your total taxable land value is $600,000 or more. The $600,000 to $999,999 band is taxed at $500 plus 1 cent for each $1 over $600,000.

For companies and trustees, the threshold drops to $350,000. The $350,000 to $2,249,999 band is $1,450 plus 1.7 cents for each $1 over $350,000. Foreign companies and trustees face an additional 3% surcharge on taxable land valued at $350,000 or more.

Don't forget transfer duty at purchase. QRO's example on an $850,000 investment property calculates transfer duty at $31,275. That's a real upfront cost worth budgeting for before you sign a contract.

This is where the loan setup starts to matter. How your loan is set up directly changes what's deductible, and once the loan is drawn, some mistakes are hard to unwind.

Keep investment and personal debt separate. Use one loan for both a rental property and a personal purchase and you've created what's often called a "dirty loan". Your accountant then has to apportion the interest, and future refinances or redraws get messy fast.

Interest-only vs P&I. Interest-only loans keep the deductible interest component higher for longer, which can help cash flow on a negatively geared property. P&I pays the loan down faster but reduces the deduction over time. Neither is right or wrong. It depends on your strategy.

The redraw trap. Redraw from your investment loan for a personal expense (a car, a holiday, your kid's school fees) and you've just contaminated the deductibility of that portion of the loan forever. Common. Painful.

Offset accounts behave differently. Money in an offset reduces interest without touching the loan balance, which keeps the full loan deductible. That's a very different outcome from redraw, and worth understanding the offset account versus redraw distinction before you settle.

Cross-collateralisation. Using one property as security for another feels convenient. It also limits your options when you want to sell, refinance or restructure. Standalone loans are usually cleaner.

If you're setting up a loan for an investment, this is worth a 20-minute conversation before you sign anything.

Structure is decided at the loan stage, not at tax time. Once it's set, it's set.

Book a 20-minute call with Victor to sort it before you settle.

• Mixing personal and investment debt into one loan
• Redrawing from an investment loan for private use (contaminates deductibility)
• Claiming a full renovation as "repairs" instead of capital works
• Skipping a depreciation schedule on an eligible property
• Forgetting to add capital improvement costs to the cost base for CGT
• Assuming positively geared means no tax planning is needed

Most of these come down to two things. How the loan was structured on day one, and how records are kept year to year. If you're just getting started and cash is tight, our guide on buying an investment property with limited deposit walks through the loan side. The tax side, again, is a conversation for your accountant.

A broker structures the loan for deductibility. An accountant handles the tax return and claims correctly. You want both talking to each other, not working in isolation.

The broker's job is to get the loan set up cleanly. Interest-only or P&I, offset in the right place, investment debt separated from personal. The accountant's job is to make sure every dollar you're entitled to claim actually gets claimed, and that CGT is calculated properly when you sell.

We work with plenty of accountants across Queensland and are happy to loop yours in. If you don't have one yet, ask your Brisbane mortgage broker for a referral.