ATO approach to apportioning rental property deductions
In this Special Xmas 2025 Legalwise edition of “What you Need to Know with Dr Mark”, Dr Mark Pizzacalla discusses the ATO’s approach when apportioning tax deductions for properties that are used for both earning rental income as well as being used for private purposes. Mark will outline the ATO’s approach and explain the ATO’s new guidelines and what you need to watch out for! Watch here in under 3 minutes!
Dr Mark Pizzacalla is a Senior Partner of global accounting firm, BDO. Mark is a recognised industry leader, and expert commentator and presenter on business and tax issues, having contributed significant tax commentary through media and publications, including Lateline Business, The Australian Financial Review and The Tax Institute Journal.
Mark has over 30 years of tax experience, including being appointed by the Federal Government to Australia’s Board of Taxation. Mark’s business experience, including as Director for various companies, gives him strong insights into both the strategic and operational business issues facing his clients. Mark’s specialisations include:
- Taxation audits, rulings & litigation
- Business advisory
- Structuring for acquisitions & disposals
- Corporate tax governance and risk management
- Inbound & outbound investments
- Succession planning
Mark completed his PhD in relation to the taxation of small businesses in Australia and is one of the few tax practitioners whose work has been cited in Australia’s Parliament. A number of Mark’s SME tax policy recommendations have been adopted by the Federal Government.
Should you wish to contact Dr Mark, he is available on email mark.pizzacalla@bdo.com.au or mobile 0413048440.
Transcript:
What You Need to Know with Dr Mark – December 2025 Edition
In this episode, Dr Mark Pizzacalla discusses the ATO’s new guidance on apportioning expenses for rental properties, following the release of Practical Compliance Guideline PCG 2025/D6. The guideline outlines how the ATO expects property owners to apportion expenses on a fair and reasonable basis where a property is not used solely for rental purposes.
Dr Mark explains that some costs — such as agent fees, advertising, Airbnb costs, and tenant-related cleaning — are fully deductible where they relate entirely to rental use. However, expenses such as repairs and maintenance must be apportioned where the property is partly rented and partly used by the owner.
He outlines two methods of apportionment:
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Time basis, where expenses are split according to the period the property is rented
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Area basis, where expenses are apportioned based on the parts of the property used by tenants versus the owner, including common areas
Dr Mark also warns that using a main residence for rental purposes may reduce the CGT main residence exemption, potentially resulting in capital gains tax on sale.
