New Treasury data shows the figure for aggregate rental property deductions will leap to $27.1 billion for 2023-24, up 58% on the 2020-21 figure of $17.1 billion.
The Treasury's Tax Expenditures and Insights statement, released on Wednesday, includes the deductions as foregone government revenue.
Treasury puts the average growth in rental deductions between 2019-20 and 2022-23 at 8.9%, with a projected growth of 4.1% over the Forward Estimate.
What are rental tax deductions?
Rental property tax deductions cover expenses associated with “maintaining and financing property interests”. These include interest and capital works expenses.
In its latest document, Treasury did not provide specific figures for “rental loss”, better known as negative gearing, for the current period.
However, it did outline rental loss figures for 2020-2021 when 2.4 million people claimed $48.1 billion of rental deductions.
These resulted in an aggregate tax deduction of $17.1 billion.
Of the total number of people with rental deductions, almost half (1.1 million people) had a rental loss, with total rental losses of $7.8 billion.
That provided those negatively geared investors with a tax benefit of around $2.7 billion in 2020-21.
Who is benefiting from negative gearing?
Treasury said 80% of the tax reduction in 2020-21 went to people with above median income.
People in the top 10% of income earners accounted for 37% of the tax reduction.
A demographic breakdown shows more than half the total tax reduction for rental deductions went to people aged between 40 and 59 years old.
Why have rental property expenses jumped?
Principal of The Rental Specialists Jo Natoli said the big hike in tax claims associated with rental properties comes as no surprise in the current high interest rate, high inflation environment.
“Investors are losing money hand over fist,” Ms Natoli told Savings.com.au.
“Prices have increased for plumbing, management fees, electricity, basic maintenance work.
“And that figure comes at a time when we’re seeing not as many investors in the market.”
The latest data from the Australian Taxation Office, released in June 2023, showed around 2.2 million Australian taxpayers owned an investment property.
That’s down from the Treasury figure of 2.4 million in 2020-21.
Ms Natoli, a board member of the Real Estate Institute of New South Wales, said she has seen people selling investment properties in the current market because of higher costs.
“Even with higher rents, the costs have been too much for some investors but on the whole, people are trying to hold on.”
In early 2023, when Australia faced annualised inflation rates in excess of 7%, Propertyology research found average investment losses topped $11,000.
Rental deduction expenses forecast to drop
Treasury estimates investor property rental deduction claims will fall in dollar terms in 2024-25 and remain lower in 2025-26.
Overall, rental deductions ranked second on the list of foregone government revenue in the current period, behind concessional taxation of employer superannuation contributions.
They ranked ahead of the discount component of capital gains tax exemption for the sale of a taxpayer’s main residence, estimated at $25 billion in foregone revenue.
Image by Gus Ruballo on Unsplash
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