Last reviewed: May 2026 · Financial year: 2025–26 · Authority: Cross-referenced against ATO Rental Properties Guide 2025 (NAT 1729), Revenue NSW published rates and rulings, and current draft TR 2025/D1.

TL;DR for NSW investors in 2025–26:
- NSW land tax kicks in at $1,075,000 (general threshold) — the highest in Australia. Frozen at this level since 1 January 2025 with no annual indexation through to a 2027 review.
- Premium threshold of $6,571,000 triggers the 2% top rate.
- Foreign owner surcharge land tax is 5% with no threshold — applied from the first dollar.
- Stamp duty tops out at premium duty for residential property over $3,721,000 (FY25–26 indexed figure). Foreign buyers add a 9% surcharge (raised from 8% on 1 January 2025 — Australia's highest).
- PPOR exemption now requires at least 25% ownership (rule effective from February 2024 — closes the parent-child 1%-ownership loophole).
- Negative gearing remains legal and unrestricted in 2025–26.
- The ATO is actively data-matching loan redraws against tax returns — this is the biggest audit trigger for property investors right now.

NSW is the largest investment property market in Australia by some distance. Around one in three Australian investment property loans is for an NSW property. That market size is reflected in Revenue NSW's compliance focus and in the ATO's data-matching priorities — your return is more likely to be looked at if your property is in NSW than anywhere else.

This guide covers every legitimate deduction available to a NSW property investor in 2025–26, the NSW-specific rules that affect those claims, and the four ATO compliance traps you need to know about before lodging.

Why New South Wales is different

Most generic "tax deductions" guides treat NSW the same as every other state. The NSW-specific things that actually affect your return are:

Land tax assessment date is 31 December. This is different from QLD, WA and SA (30 June) and Tasmania (1 July). It matters when timing purchases and sales — owning at midnight 31 December 2025 makes you liable for the entire 2026 land tax year.

Three-year averaging. Revenue NSW averages your land values over three consecutive years to determine your taxable land value. This smooths out year-to-year volatility but also means you can drift over the threshold without buying anything new — a risk that's grown sharper now the threshold has been frozen.

The 25% PPOR ownership rule (from February 2024). All persons occupying the property as their home must collectively own at least 25% of it to claim the principal place of residence exemption. This closed a long-standing structuring loophole.

9% foreign buyer stamp duty surcharge — the highest in Australia. Raised from 8% to 9% on 1 January 2025. This is in addition to the standard transfer duty.

5% surcharge land tax with no threshold. Foreign persons pay this on every dollar of NSW residential land value, even if their general land tax threshold isn't reached. The High Court's October 2025 decision in G Global confirmed these surcharges are valid.

Premium duty threshold indexed annually — premium rates apply on residential property over $3,721,000 for FY25–26, indexed each year.

These are the things that move the dial on a NSW return. The rest of the deductions are governed by federal ATO rules.

Part 1: Common deductions every NSW investor can claim

Modelled scenario

How a frozen threshold creates rising tax for unchanged property

A Sydney investment property at $1.4M land value (2022 purchase), 4% annual appreciation. Three-year averaged value vs the frozen $1,075,000 threshold.

What this means

An investor whose property's market value never moves still pays $5,588/year by 2029 if the threshold remains frozen — up from $1,455 in 2024. None of this requires a rate change or policy announcement.

These deductions are governed by the Income Tax Assessment Act 1997 and the ATO's Rental Properties Guide 2025 (NAT 1729). For a deduction to be valid, the property must have been rented or genuinely available for rent during the period the expense was incurred.

1. Loan interest

Interest on the loan you used to acquire your NSW investment property is fully deductible — and is by far the largest deduction for most investors. Interest on loans for capital improvements is also deductible.

The trap that catches NSW investors most often: redraw for private purposes. Interest on a redraw used to fund anything other than property income is not deductible, no matter how the loan is secured. Covered in detail in Part 4.

2. Property management fees

PM fees in Sydney metro typically run 5.5–7.5% (lower than QLD averages) due to higher rents and competition. Regional NSW PMs charge 7–9%. All fees are deductible — recurring management percentage, letting fees, advertising fees, lease preparation, and inspection charges.

3. Council rates

Local government rates from your NSW council (City of Sydney, Inner West, Northern Beaches, Penrith, Newcastle, Wollongong, Lake Macquarie, etc.) are fully deductible in the financial year paid. Apportionment required if the property was not rented or genuinely available for rent for part of the year.

4. Water rates and usage

Sydney Water, Hunter Water, and other NSW water authorities issue separate supply and usage charges. The supply charge is generally a landlord cost; usage typically passes to the tenant under most NSW residential leases. Whatever portion the landlord pays is deductible.

5. Insurance premiums

Landlord insurance, building insurance, and contents insurance premiums for the rental property are all deductible. NSW-active insurers include Terri Scheer, EBM RentCover, and CHU. Premiums include stamp duty (paid to Revenue NSW) and GST — both components are deductible as part of the premium.

6. Repairs and maintenance

Repairs that restore the property to its previous condition — without improving it — are immediately deductible. The repair vs improvement distinction is heavily audited by the ATO; covered in detail in Part 4.

7. Body corporate / strata fees

NSW has the largest strata market in Australia. Quarterly admin fund and capital works fund (sinking fund) contributions are immediately deductible. Special levies for ordinary maintenance are deductible. Special levies for capital improvements are not — they form part of your Division 43 capital works base.

8. Land tax

NSW land tax is fully deductible against rental income. We cover the NSW-specific thresholds, rates, and dates in Part 2.

9. Advertising for tenants

Realestate.com.au listings, Domain listings, professional photography for the rental campaign, and signboards are all deductible.

10. Legal expenses

Deductible: legal costs of evicting a tenant, recovering unpaid rent, preparing residential tenancy agreements (in some circumstances). Not deductible — capital, but added to CGT cost base: conveyancing on purchase or sale, disputes about title or boundaries.

11. Stationery, phone, internet (rental portion)

Costs incurred to manage the rental property — calls to your PM, postage, the proportion of home internet used for rental admin — are deductible to the extent they relate to producing rental income.

12. Quantity surveyor fees

Cost of obtaining a depreciation schedule from a qualified QS is fully deductible. We cover when to commission one in Part 3.

13. Tax agent fees (rental portion only)

Portion of your tax agent's fee that relates to preparing the rental schedule is deductible.

14. Pest control

Routine pest control between tenancies and annual termite inspections (still relevant in NSW coastal areas) are immediately deductible.

15. Cleaning and gardening

End-of-tenancy cleaning, routine cleaning, lawn mowing and gardening — all immediately deductible.

16. Bank fees and loan-related costs

Loan establishment fees, valuation fees, and LMI are borrowing costs — deducted over the lesser of 5 years or the loan term. Annual loan account-keeping fees and mortgage discharge expenses are immediately deductible.

17. Travel to property — heavily restricted

Since 1 July 2017, travel to inspect, maintain, or collect rent from a residential rental property is not deductible for individual investors. Eight years on, this remains one of the ATO's easiest audit catches. Companies and trusts (other than excluded entities) may still claim travel.

Part 2: NSW Land Tax — the rules that actually matter

This is the most consequential state-specific tax for NSW investors with portfolios above the threshold.

Who pays?

Land tax is levied by Revenue NSW annually, based on the 3-year average taxable value of NSW land you own at midnight on 31 December. Your principal place of residence is exempt (subject to the 25% ownership rule from February 2024). Investment properties, holiday homes, and vacant land are all assessable.

The taxable value is the unimproved value of the land, set by the NSW Valuer-General each year. Revenue NSW averages this over the current and two previous years.

2025–26 thresholds and rates

Individual owners

Total taxable land value (3-year average)	Land tax payable
Up to $1,075,000	$0
$1,075,001 – $6,571,000	$100 + 1.6% of the value above $1,075,000
Above $6,571,000 (premium)	$88,036 + 2.0% of the value above $6,571,000

Worked example (Revenue NSW): Joan owns three properties with three-year average values of $525,000, $430,000, and $700,000 — combined $1,655,000. Her land tax for 2026 is calculated as ($1,655,000 − $1,075,000) × 1.6% + $100 = $9,380.

Source: Revenue NSW published rates, current 2025–26.

Trusts and special trusts — nil threshold

Discretionary trusts, some unit trusts, and certain groups of related companies have a nil threshold — they pay land tax from the first dollar of NSW land value. This is a fundamental design choice in the NSW land tax system, intended to discourage trust-based threshold splitting.

Fixed trusts that meet specific Revenue NSW criteria can access the general threshold. If you're considering a trust structure for NSW investment, take advice on the trust deed before settlement — many older deeds inadvertently fail the fixed-trust test.

Foreign owner surcharge land tax — 5%, no threshold

Foreign persons pay an additional 5% surcharge land tax on the value of all NSW residential land they own. This applies from the first dollar — there is no threshold. The surcharge applies even if your general land tax threshold isn't reached.

A trust may be liable for surcharge land tax where the beneficiaries include foreign persons. This catches many discretionary trusts where the trust deed permits but does not require foreign beneficiaries. The surcharge can be avoided where the deed has been validly amended to irrevocably exclude foreign persons. This is a common piece of structuring work for NSW property holders with discretionary trusts.

Threshold freeze (2025–2027)

The 2024–25 NSW Budget froze the general threshold at $1,075,000 and the premium threshold at $6,571,000 from 1 January 2025. Both are scheduled to be reviewed by 1 June 2027. There is no annual indexation — meaning rising land values automatically pull more investors over the threshold each year without any change in policy.

This is the single biggest structural reason NSW investor land tax bills are climbing year on year. If your three-year average land value is currently $950,000, it's worth modelling what it looks like in 2027 — many investors will cross the threshold for the first time over this period.

Assessment date

NSW assesses land tax at midnight 31 December. This is not pro-rated. If you own taxable land at midnight 31 December 2025, you owe land tax for the entire 2026 land tax year — even if you sell on 2 January 2026.

When does Revenue NSW issue assessments?

Revenue NSW issues land tax assessments from late January through to March of the assessment year. The lodgement deadline for initial returns (for new landholders or those with changed circumstances) is 31 March.

Is land tax deductible?

Yes — fully deductible against rental income in the year the liability relates to (not the year you pay it, although in practice most investors deduct in the year of payment). This is consistent with ATO guidance.

Common land tax mistakes in NSW

Three-year averaging surprise. If you bought a property in 2024, your 2026 assessment uses values from 2024, 2025, and 2026 — averaged. Many investors expect land tax to apply from year one and are caught when it kicks in in year two or three as the average rises.

Trust surcharge inheritance. A deed amended to be a "fixed trust" only counts if it meets Revenue NSW's fixed trust criteria specifically. A general "fixed trust" deed amendment that doesn't meet those exact criteria leaves you with the surcharge.

The 25% ownership rule. From February 2024, the PPOR exemption requires at least 25% collective ownership. If you've been claiming PPOR with a 1% interest while a parent or trust holds the rest, you've lost the exemption. Transitional provisions may preserve some pre-existing arrangements — check directly with Revenue NSW.

Part 3: Depreciation — the same federal rules, but NSW-specific patterns

Depreciation rules are federal — they apply identically in every state. The patterns vary because NSW has a higher proportion of older housing stock (significant pre-1987 inner-Sydney terraces and federation homes) and a higher proportion of new high-rise apartments.

Division 43 — Capital Works (the building itself)

Eligible buildings: residential buildings constructed after 15 September 1987
Annual deduction rate: 2.5% per year
Claim period: 40 years from construction completion
Basis: original construction cost

For a high-rise Sydney apartment built in 2018 at a construction cost of $400,000, the annual Division 43 deduction is $10,000 every year until 2058.

For older NSW housing stock (anything built before 15 September 1987), Division 43 isn't available on the original construction. But subsequent renovations and improvements are claimable at the same 2.5% over 40 years from when the work was completed. A 1920s federation house in Newtown that had a $200,000 renovation in 2018 still has $5,000/year of Division 43 available.

Division 40 — Plant and Equipment

Removable assets — carpets, blinds, hot water systems, air conditioners, ovens, dishwashers, smoke alarms.

The May 2017 change (still applies in 2025–26)

If you, as an individual taxpayer, acquired a second-hand residential property under a contract entered into after 7:30pm AEST on 9 May 2017, you cannot claim Division 40 depreciation on the existing plant and equipment that came with the property.

What this means in NSW:

New off-the-plan apartments (settled after 9 May 2017): full Division 40 claim available
Second-hand Sydney apartments and houses bought after 9 May 2017: no Division 40 on the existing fittings; yes Division 40 on anything you replace
Division 43 capital works: unaffected — claimable on second-hand buildings as before

This rule has reshaped Sydney apartment investing significantly. New apartment depreciation typically runs $7,000–$12,000 per year in years 1–5 — nearly double what's available on equivalent second-hand stock. It's a real factor in why off-the-plan stock attracts more investor capital than its true economic merit warrants.

SMSFs and family trusts are not exempt from the May 2017 change — they sit alongside individual investors under the restriction. Companies are exempt.

When to commission a depreciation schedule

Always, unless your NSW property is a 1900s terrace with no significant renovations and minimal plant. The QS fee ($600–$900) is itself deductible, and a typical schedule pays for itself within the first six months. NSW-active QS firms include BMT, Washington Brown, Capital Claims, and Duo Tax.

Part 4: The four ATO compliance traps to avoid in 2025–26

The ATO's data-matching program through 2025–26 specifically targets rental property returns. Property managers, banks, landlord insurers, and short-term rental platforms (Airbnb, Stayz) all report data directly to the ATO. The ATO has additional Revenue NSW funding ($744m allocated in the 2025–26 NSW budget) for compliance work, including coordinated audits.

Trap 1: Loan redraws for private purposes

The biggest single source of ATO adjustments. Interest is only deductible on the portion of a loan used for income-producing purposes. A redraw for private purposes — holiday, car, school fees, your own home renovation — taints that portion permanently.

Example: You take out a $750,000 investment loan to buy a Western Sydney rental in 2022. In 2025 you redraw $50,000 to fund a kitchen renovation in your own home. Your loan now has two components: $700,000 investment-related and $50,000 private. From that point forward, only 93.3% of the interest charged on the loan is deductible. The remaining 6.7% is non-deductible private interest.

The ATO sees this through bank data matching. The 2021–22 to 2025–26 program specifically targets investment loan transactions. Discrepancies between claimed interest and the apportioned amount trigger nudge letters at minimum, audits at worst.

What to do:

Never redraw for private purposes if you can avoid it
Use 100% offset accounts for liquidity — funds in offset don't taint the loan
If you have redrawn in the past, calculate the apportionment correctly before lodgement
Keep separate loan accounts for investment and personal borrowing

Trap 2: Repairs vs improvements

The ATO scrutinises this every year.

Repairs (immediate deduction) — restore the property to its previous condition:

Replacing broken roof tiles
Repainting after tenant damage
Repairing a leaking tap or hot water system
Pest control

Improvements (capital, claimed over 40 years) — upgrade the property beyond its previous condition:

Replacing a kitchen
Adding a deck or pergola
Installing new air-conditioning where there was none
Replacing all carpets when only some were damaged

Initial repairs — repairs to fix damage that existed at the time of purchase — are not immediately deductible. They form part of your CGT cost base. This catches NSW investors who buy older terraces or apartments and immediately spend $30,000–$50,000 on remedial work.

Trap 3: Genuinely available for rent

Expenses are only deductible for the period the property was rented or genuinely available for rent. The ATO is increasingly testing this — particularly for holiday homes at NSW coastal locations (Byron, Jervis Bay, Central Coast). Draft PCG 2025/D7, released in November 2025, specifically addresses holiday home situations.

Risks:

Advertising at well above market rent for extended periods
Restricting the tenant pool unreasonably
Personal use during periods you claim it was available
Long vacancies without documented marketing

Trap 4: Travel claims

Non-deductible since 1 July 2017 for individual investors with residential property. This rule is now eight years old. The ATO has zero patience for claims that should have stopped in 2017.

Part 5: Stamp duty in NSW

Stamp duty (called transfer duty in NSW) isn't an annual deduction — it's a one-off cost paid at purchase, and it forms part of your CGT cost base for when you eventually sell.

Standard transfer duty rates 2025–26 (investment purchases)

NSW transfer duty is calculated on a sliding scale based on the dutiable value (the higher of contract price or market value).

For a typical investment purchase, expect:

$500,000 property → ~$17,990 duty
$750,000 property → ~$29,239 duty
$1,000,000 property → ~$39,412 duty
$1,500,000 property → ~$67,090 duty
$2,000,000 property → ~$95,280 duty
$3,721,000+ property → premium duty applies

Premium duty for the FY25–26 year applies to residential property over $3,721,000 (CPI-indexed annually). At and above this threshold, the rate increases to $186,667 plus $7.00 per $100 of value above the premium threshold.

Foreign Purchaser Duty Surcharge — 9% (highest in Australia)

Foreign buyers pay an additional 9% surcharge on the dutiable value of NSW residential property. This rate was increased from 8% to 9% on 1 January 2025.

A foreign buyer purchasing a $1M Sydney investment property pays:

Standard duty: ~$39,412
9% foreign surcharge: $90,000
Total: ~$129,412

This is the highest combined rate in Australia and is one reason foreign investor activity has materially declined in Sydney since 2017.

When to pay

Transfer duty is payable within 3 months of the contract date — or settlement, whichever is earlier. In practice, conveyancers manage this and the duty is paid at or before settlement.

Treating stamp duty correctly in your records

Do not claim stamp duty as an annual deduction. Record it carefully — it forms part of your CGT cost base alongside the purchase price, legal fees, building and pest inspection costs, and other acquisition costs. A $39,412 stamp duty bill on a $1M Sydney purchase reduces your eventual taxable capital gain by the same amount when you sell.

Part 6: CGT considerations for NSW investors

CGT is a federal tax — same rules apply in every state. The framework:

The 50% CGT discount. Hold a residential investment property for more than 12 months as an individual or trust (not a company), and you only pay CGT on 50% of the capital gain. This is one of the most valuable concessions in Australian tax and is a structural reason negative gearing works at scale.

The cost base. Includes purchase price plus stamp duty, legal/conveyancing fees, building and pest inspection fees, buyer's agent fees, capital improvements (Division 43 amounts already claimed are subtracted — no double-dip), and selling costs.

Negative gearing remains legal and unrestricted in 2025–26. No changes have been announced.

Part 7: Record keeping that will survive an ATO review

The ATO requires you to keep records for at least 5 years from the date you lodge the relevant tax return. For CGT, the entire ownership period plus 5 years after disposal.

For NSW investors specifically, keep:

Every property manager statement
Bank statements showing rental income
Records of bond money retained (taxable income)
Records of any short-term rental income (Airbnb, Stayz — reported directly to the ATO)
Every invoice, receipt, and bank record for expenses
Photos before and after for repairs
Annual loan statements
Records of any redraws with notes on purpose
Full QS depreciation schedule
Receipts for any new plant and equipment installed
Receipts for any capital improvements
Revenue NSW land tax assessments
Stamp duty receipts (kept for the entire ownership period — CGT cost base)
Strata notices and minutes (special levies in particular)
Council rates notices

The reality of doing this in spreadsheets

Most investors try to manage this in a spreadsheet, a folder of PDFs, and the occasional shoebox of receipts. Three years in, the spreadsheet has gaps, a quarter of the receipts are missing, and the GST treatment on body corporate fees is wrong.

The ATO's compliance focus assumes you've kept clean records. If you haven't, the safe outcome is to walk away from claims you genuinely could have made. Propperly is built to fix this — forward your council rates, water bills, and rental statements to your dedicated Propperly inbox; we extract, categorise, and link to your NSW property automatically.

Tracking your NSW deductions automatically

Propperly's free Tax Centre helps you:

Capture every deductible expense as it happens — bank feeds, AI bill scanning, statement importing
Categorise to the exact ATO category your tax agent expects
Track NSW land tax against the $1,075,000 threshold (and the trap of three-year averaging)
Load your depreciation schedule once and have it claimed correctly every year
Generate a clean EOFY summary your accountant can lodge from
Flag the four ATO compliance traps before they become a problem

Get started with Propperly's free Tax Centre →

No credit card required. Built specifically for Australian property investors.

Frequently asked questions

Is NSW land tax really deductible against my rental income?

Yes. Land tax is a holding cost incurred to produce rental income, and is deductible. Consistent with ATO Rental Properties Guide 2025.

What's the foreign purchaser duty rate in NSW?

9% surcharge on the dutiable value of residential property, raised from 8% to 9% on 1 January 2025. This is in addition to the standard transfer duty.

What's the foreign owner land tax surcharge in NSW?

5% on all NSW residential land owned by foreign persons, with no threshold.

Can I claim depreciation on a second-hand Sydney apartment bought in 2024?

Division 43 capital works: yes (if built after 15 September 1987). Division 40 on existing fittings: no — the May 2017 change applies. Division 40 on anything new you install after settlement: yes.

Why is my NSW land tax going up if my land hasn't been revalued?

Three-year averaging. Revenue NSW uses an average of the current and two previous years' land values. Rising values pull more investors over the frozen threshold each year.

When is NSW land tax assessed?

Midnight 31 December. Not pro-rated. Selling on 2 January doesn't reduce the bill — you owe for the whole year.

Has the threshold been frozen?

Yes — both the general ($1,075,000) and premium ($6,571,000) thresholds were frozen from 1 January 2025 by the 2024–25 NSW Budget. Scheduled for review by 1 June 2027.

Is negative gearing still legal in 2025–26?

Yes. The current government has confirmed no changes for 2025–26.

What's the new 25% PPOR rule?

From February 2024, all persons occupying the property as their home must collectively own at least 25% of it to claim the principal place of residence exemption. This closed the loophole where a parent could hold 99% and a child claim the full PPOR exemption based on a 1% stake.

Can my SMSF claim Division 40 on existing plant in a second-hand property?

No. SMSFs and family trusts were not granted the corporate exemption from the May 2017 change.

What does the ATO actually focus on?

Loan redraws used for private purposes (the biggest trap), repairs misclassified as immediate deductions when they're capital improvements, depreciation claims on second-hand plant that should have stopped in 2017, and travel expenses for residential properties (non-deductible since 2017).

How long do I keep records?

Five years from lodgement for income/expense records. The full ownership period plus five years after sale for anything affecting CGT cost base.

Related resources

NSW Land Tax Calculator → NSW Stamp Duty Calculator → CGT Calculator → Depreciation Estimator →

Other state guides:

Sources

ATO, Rental Properties Guide 2025 (NAT 1729)
ATO, draft TR 2025/D1, PCG 2025/D6, PCG 2025/D7
ATO, TR 2000/2 (deductibility of interest)
ATO, TR 2023/2 (effective life of depreciating assets)
Revenue NSW, published land tax rates and rulings 2025–26
Revenue NSW, published transfer duty rates 2025–26
Income Tax Assessment Act 1997
Land Tax Management Act 1956 (NSW)
Land Tax Act 1956 (NSW)
Treasury Laws Amendment (Housing Tax Integrity) Act 2017
G Global Capital Pty Ltd v Chief Commissioner of State Revenue [High Court, 15 October 2025]

General information only — not personal financial, taxation, or legal advice. Consult a registered tax agent for advice specific to your circumstances. Last reviewed: May 2026.

Investment Property Tax Deductions NSW 2026 | Propperly