How is the tax on a rental worked out each year?
Rent less the allowable costs, including loan interest, goes into your taxable income, and you pay tax on it at your rates. If the costs are more than the rent, the loss lowers your other income in 2026-27. Cash left is a different figure, because the principal you repay is not deductible and depreciation costs no cash that year.
A rental loss, before and from 2027-28
| Year | A rental loss |
|---|---|
| 2026-27 | A rental loss Lowers your other income |
| 2027-28 | A rental loss Carried forward if the contract was signed from 7:30 pm Canberra time on 12 May 2026, unless an exception applies |
The calculator works out the year you choose and shows each step from the rent to the tax and the cash left.
A worked example
A rental earns $30,000 in rent in 2026-27. Its loan interest is $18,000 and its other costs are $9,000, so its taxable result is $3,000. With $120,000 of other income, that adds $960 of tax. The $6,000 of principal repaid is not deductible, so after the costs, the principal and the tax the year ends $3,960 short, or $330 a month.
What people ask
How is tax on rental income worked out?
The rent less the deductible costs gives the rental's taxable result. It is added to your other income and taxed at your rates, so a loss lowers that income under the rules today. More in Tax on a rental each year and Rental income and cash flow.
What comes off rental income?
Loan interest, rates, insurance, agent fees, repairs and depreciation are deductible. The principal you repay is not. More in A free rental property spreadsheet, Is loan interest deductible? and Can you claim a loan's fees and stamp duty?.
How do I work out after-tax cash flow?
Take the rent, less the cash costs and the principal repaid, then the tax the rental adds, or add the tax it saves. Depreciation lowers the tax but isn't cash spent. More in Rental income and cash flow.
Where the rules come from
By Varun Agarwal. Updated
- Treasury Laws Amendment (Tax Reform No. 1) Act 2026, Schedule 2, made 26 June 2026
- ATO, new legislation page, updated 29 June 2026
The ATO's figures on what landlords earn and lose, postcode by postcode, are in Rental income, losses and capital gains by postcode, 2023-24.