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Rental income

Rental and rental-related income to declare and how to divide income and expenses when you co-own the rental property.

Published 28 May 2025

Rental and rental-related income

Rental and other rental-related income is the full amount of rent and associated payments that you receive, or become entitled to, when you rent out your property. Whether it is paid to you or your agent, you must include your full share of the amount of rent you earn in your tax return.

Rental income also includes rent or associated payments that you receive, or become entitled to, when you rent out part or all of your home through the sharing economy or you rent your holiday home.

Rent and associated payments may be in the form of goods and services. You'll need to work out the monetary value of these. For example, if the tenant gives you property or goods as rent instead of money, you include the market value of the property or goods as rental income in your tax return.

You must include rental bond money as rental income if you're entitled to retain it, for instance, because a tenant defaulted on the rent, or because damage to your rental property required repairs or maintenance.

If you receive an insurance payout, there may be situations where the payout is rental income, for example, an insurance payment to compensate you for lost rent.

If you receive a letting or booking fee, you must include this as part of your rental income.

Associated payments include all amounts you receive, or become entitled to, as part of the normal, repetitive and recurrent activities through which you intend to generate profit from the use of your rental property.

If you receive a reimbursement or recoupment for deductible expenditure, you may have to include an amount as income. For example, if you receive:

  • an amount from a tenant to cover the cost of repairing damage to some part of your rental property and you can claim a deduction for the cost of the repairs, you need to include the whole amount in your income
  • a government rebate for the purchase of a depreciating asset, such as a solar hot-water system, you may need to include an amount in your income.

For more information, see Taxation Determination TD 2006/31 Income tax: is a government rebate received by a rental property owner an assessable recoupment under subsection 20-20(3) of the Income Tax Assessment Act 1997, where the owner is not carrying on a property rental business and receives the rebate for the purchase of a depreciating asset (for example, an energy saving appliance) for use in the rental property.

You must include as rental income any assessable amounts relating to limited recourse debt arrangementsExternal Link involving your rental property. For more information, see Guide to depreciating assets 2025.

Co-ownership of rental property

The division of rental income and expenses between co-owners varies depending on whether the co-owners are joint tenants, tenants in common or there is a partnership carrying on a business of letting rental properties.

Dividing income and expenses according to legal interest

Co-owners who are not carrying on a business of letting rental properties must divide the income and expenses for the rental property in line with their legal interest in the property. If they own the property as:

  • joint tenants, they each hold an equal interest in the property
  • tenants in common, they may hold unequal interests in the property – for example, one may hold a 20% interest and the other an 80% interest.

Rental income and expenses must be attributed to each co-owner according to their legal interest in the property, despite any agreement between co-owners, either oral or in writing, stating otherwise.

Example 1: joint tenants

Laura and Wendall own an investment rental property as joint tenants (50% share each). In the relevant income year, Laura phones us and asks if she can claim 80% of the rental loss as:

  • she earns $167,000 a year
  • Wendall earns $31,000.

Therefore, it would be better if she claims most of the rental loss, as she would save more tax. Laura thought it was fair that she claim a bigger loss because she pays for most of the expenses using her wages. Under a partnership agreement drawn up by Laura and Wendall, Laura is supposed to claim 80% of any rental loss.

We advise Laura that where 2 people own a rental property as joint tenants, the net rental loss must be shared in line with their legal interest in the property. Therefore, Laura and Wendall must each include half of the total income and expenses in their tax returns.

Any agreement that Laura and Wendall might draw up to divide the income and expenses in proportions other than equal shares has no effect for income tax purposes. Therefore, even if Laura pays most of the bills for the rental property, she can't claim more of the rental property deductions than Wendall.

End of example

 

Example 2: tenants in common

In Example 1, if Laura and Wendall own the property as tenants in common in equal shares, Laura can still only claim 50% of the total property deductions.

However, if Laura’s legal interest was 75% and Wendall’s legal interest was 25%, then:

  • Laura must include 75% of the income and expenses in her tax return
  • Wendall must include 25% of the income and expenses in his tax return.
End of example

If, as a co-owner, you borrow money to acquire your interest in the rental property, you can claim a deduction for all of the interest expenses. You don't need to divide the interest on this amount between the co-owners.

If you don’t know whether you hold your legal interest as a joint tenant or a tenant in common, read the title deed for the rental property. If you're unsure whether your activities constitute a rental property business, see Partners carrying on a business of letting rental properties.

Co-owners of an investment property (not in business)

A person who simply co-owns an investment property or several investment properties is usually an investor not carrying on a business of letting rental properties, either alone or with the other co-owners. This is because of the limited scope of the rental property activities and the limited degree to which a co-owner actively participates in rental property activities.

Example 3: co-owners who are not carrying on a business of letting rental properties

Claudio and Judith own, as joint tenants, 2 units and a house from which they derive rental income. Claudio and Judith occasionally inspect the properties and also interview prospective tenants.

Claudio performs most repairs and maintenance on the properties himself, although he generally relies on the tenants to let him know about issues. Claudio and Judith do any cleaning or maintenance when tenants move out.

The tenants of the 2 units and the house pay the weekly rent into Claudio and Judith's account. Although Claudio and Judith devote some of their time to rental income activities, their main sources of income are their respective full-time jobs.

Claudio and Judith are not partners carrying on a business of letting rental properties. They are only co-owners of several rental properties.

As joint tenants, they must each include half of the total income and expenses for the rental properties in their tax returns, in line with their legal interest in the properties.

End of example

Partners carrying on a business of letting rental properties

Most rental activities are a form of investment and don't amount to carrying on a business. However, where you're carrying on a business of letting rental properties in partnership with others, you must divide the net rental income or loss according to the partnership agreement. You must do this even where the legal interests in the rental properties are different to the partners’ entitlements to profits and losses under the partnership agreement. If you don't have a partnership agreement, you should divide your net rental income or loss between the partners equally.

Example 4: co-owners who are carrying on a business of letting rental properties

Lazlo and Petra own several rental properties either as joint tenants or tenants in common. They own 8 houses and 3 apartment blocks (each apartment block comprising 6 residential units), a total of 26 properties.

Lazlo and Petra actively manage all these properties, devoting an average of 25 hours per week each, to these activities. They:

  • do all the financial planning and decision making in relation to the properties
  • interview all prospective tenants and collect all the rents
  • carry out regular property inspections and attend to all the everyday maintenance and repairs themselves or organise them to be done on their behalf.

Apart from income Lazlo earns from shares, they have no other sources of income.

Lazlo and Petra are carrying on a business of letting rental properties, because of the:

  • significant size and scale of the rental property activities
  • number of hours they spend on the activities
  • extensive personal involvement they have in the activities
  • business-like manner in which they plan, organise and carry on these activities.

Lazlo and Petra have a written partnership agreement where they agree to carry on a business of letting rental properties. They have an agreement that shows:

  • Lazlo is entitled to a 75% share of the partnership profits or losses
  • Petra is entitled to a 25% share of the partnership profits or losses.

Because Lazlo and Petra are carrying on a business of letting rental properties, they divide the net profit or loss it generates between them according to their partnership agreement (in proportions of 75% and 25%), even if their legal interests in the rental properties are equal, that is, they each own 50%.

End of example

For more information on dividing net rental income or losses between co-owners, see Taxation Ruling TR 93/32 Income tax: rental property – division of net income or loss between co-owners.

For more information on determining whether a business of letting rental properties is being carried on, determining whether it is being carried on in partnership, and the distribution of partnership profits and losses, see:

  • Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production?
    Paragraph 13 of Taxation Ruling TR 97/11 which lists 8 indicators to determine whether a business is being carried on. Although this ruling refers to the business of primary production, these indicators apply equally to activities of a non-primary production nature.
  • Taxation Ruling TR 94/8 Income tax: whether a business is carried on in partnership (including ‘husband and wife’ partnerships)
  • Taxation Ruling IT 2423 Withholding tax: whether rental income constitutes proceeds of business – permanent establishment – deduction for interest

If you're carrying on a business, you may be eligible for the small business CGT concessionsExternal Link and simpler depreciation for small businessExternal Link. Small business CGT concessions don't apply to assets you use mainly to derive rent.

Contact us or your recognised tax adviser if you're unsure whether:

Continue to: Rental expensesExternal Link

Return to: What's new in the rental properties guide?External Link

 

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