Rental Income Tax for Property Owners (2026 Update)

Rental income refers to the money you earn from allowing others to use or occupy your property, whether through a long-term residential lease or short-term accommodation platforms such as holiday rentals or Airbnb. The Australian Taxation Office (ATO) recognises rental income as a key part of property investment activity, which means it must be declared accurately and assessed in line with tax law. 

Understanding what counts as rental income helps property owners meet their reporting obligations and avoid common compliance issues. This guide provides a clear overview of rental income in Australia and explains how it is assessed and managed for tax purposes.

How is Rental Income Taxed in Australia? 

Rental income from investment properties is treated as assessable income and must be declared in your annual tax return just like wages or business income, for the year in which you are entitled to receive it. This includes rent from long-term tenants, short-term stays through platforms like Airbnb, bond amounts retained because of damage or unpaid rent, booking or letting fees, and certain insurance payouts related to rental loss. All such payments are included in your gross rental income and must be reported, whether received directly by you or via an agent or property manager.

If you rent part or all of your own home including through sharing economy platforms,  the rent you receive is assessable income, and you can claim deductions for associated expenses for the period the property was genuinely available for rent. 

How to Calculate Rental Income for Tax Purposes (2026)

According to the Australian Taxation Office (ATO), rental income earned by Australian tax resident property owners in the 2025–2026 financial year is taxed as part of total taxable income. The resident tax rates and thresholds used to calculate this are outlined in the table below.

Taxable income	Tax payable on this income
$0 – $18,200	No tax payable
$18,201 – $45,000	16% on the amount above $18,200
$45,001 – $135,000	$4,288 plus 30% on amounts over $45,000
$135,001 – $190,000	$31,288 plus 37% on amounts over $135,000
$190,001 and above	$51,638 plus 45% on amounts over $190,000

These tax rates apply only to Australian tax residents and exclude the Medicare levy. Different rules and rates apply to foreign resident property owners.

Rental Income Tax for Different Property Types

1. Tax on Residential Rental Properties

All rent you receive from residential rental properties must be declared as part of your assessable income in your tax return, this includes rent paid by tenants and any bond money you retain in place of rent, as well as other receipts related to the tenancy. According to the ATO, rental income is treated the same as other income and must be included in the year you are entitled to receive it.

After claiming allowable deductions (such as interest on investment loans, property management fees, repairs and maintenance), the net profit from your rental property is added to your other taxable income. There is no separate tax rate for rental income, it is taxed at your individual marginal tax rate, which can be up to 45% for higher income earners under the current Australian tax system. 

For example, in the 2025–202626 financial year, taxable income over $190,000 is taxed at 45% (excluding the Medicare levy), while lower portions are taxed at progressively lower rates.

2. Tax on Short-Term and Holiday Rentals

Income from short-term and holiday rentals including properties let via platforms like Airbnb, Stayz or Booking.com, is treated the same as other rental income for tax purposes: all income you receive must be declared in your annual tax return as assessable income. This includes nightly charges, cleaning fees or any amounts you are entitled to receive from letting the property

3. Rental Income from Overseas or Interstate Properties

Rental income from properties located outside Australia or in a different Australian state/territory still counts as assessable income and must be reported in your tax return. For properties overseas, you include the rental income and related expenses in your return, and you may be eligible for a foreign income tax offset if you paid tax on that income in another country.

If you are a non-resident for tax purposes (for example, living overseas), the ATO generally taxes your sourced rental income from the first dollar, and you may not receive the tax-free threshold. Non-residents are typically taxed at set rates without the usual tax-free threshold, starting from 32.5%. 

What Are the Most Common Rental Income Tax Mistakes Landlords Make?

Many rental property owners make avoidable tax mistakes that can lead to ATO audits, denied deductions, or penalties, often due to misunderstanding rental income rules and record-keeping obligations.

• Misunderstanding deductible expenses: Many landlords confuse what can be claimed and when, especially repairs vs capital improvements.
• Overclaiming deductions “double dipping”: Claiming the same expense more than once or inflating costs to offset income is a common error flagged by the ATO.
• Incorrect interest claims: Claiming interest on loan amounts used for private purposes or without proper apportionment.
• Insufficient documentation: Not keeping receipts, invoices, or proper records to substantiate claims can lead to return adjustments and penalties.
• Failing to report all rental income: Omitting income,including short-term rental platform earnings can trigger ATO queries.

Explore more: Rental Property Tax Obligations: A Checklist for Property Owners

Effortless Rental Management with Discover Snowy Mountains 

Managing a rental property in the Snowy Mountains comes with unique challenges, from fluctuating seasonal demand to strict compliance and ongoing tax obligations. Discover Snowy Mountains makes the process effortless for property owners by providing end-to-end support backed by deep local knowledge and proven expertise in accommodation and property management. From maximising rental returns to ensuring accurate reporting and day-to-day management, our team handles the details with care and professionalism. 

Contact us today and let us take care of the details, so you can focus on enjoying the benefits of your property investment with confidence.

Please note that this article provides general information on how rental income may be taxed in Australia. Tax treatment can vary based on ownership structure and personal circumstances, so property owners should always confirm their specific obligations with their accountant or tax professional.

So that you know, this article provides general information on how rental income may be taxed in Australia. Tax treatment can vary based on ownership structure and personal circumstances, so property owners should always confirm their specific obligations with their accountant or tax professional.