Holding costs are the regular expenses that a property owner needs to incur while maintaining ownership of a property. The same would be applicable if the property were being let out, or held for investment purposes, or even kept empty. Holding costs are one of the most vital variables that enter the financial planning of property ownership in Australia, as they determine the profitability aspect.
The most common expenses related to holding an investment property include mortgage interest payments, council rates, land tax, insurance, and maintenance. Mortgage interest is usually the largest component of holding costs, especially for properties borrowed on. One of the major sources of revenue for local governments is to provide, for example, waste collection and road maintenance services. Land tax is applicable in some states and is determined by the value of the land, not including the structures on it.
However, many of those expenses are deductible, and many can be cut with proper management. In the article below, we will tell you how to best manage holding costs if you possess an investment property in Australia.
How Will Holding Costs Change If My Property Was Previously Rented?
While council rates and land taxes remain the same, the absence of tenants makes it more difficult to offset the holding costs. The owner has to bear all the financial obligations until a replacement tenant is found, thus being one of the reasons property owners should start preparing for any type of impending vacancy and factor in increased holding costs for such times.
If you are selling a property in Australia that was let and has since been your home, you may be able to reduce any taxable capital gain by including certain holding costs in the cost base of the property. Your CGT is calculated using the cost base, and adding some eligible expenses can minimize the tax owed:
- Water Rates
- Electrical Bills
- Contents Insurance
However, not all costs can be added to the cost base. Fixed water rates and electricity bills are usually allowable and can be added to the cost base of an investment property, provided they relate to a time when the property was rented out. However, once the property becomes your personal residence, any water rates you pay are no longer considered deductible nor eligible to be added to the cost base. Only the expenses accrued when the property was producing rental income are able to be added to reduce your CGT liability.
The contents insurance primarily covers furnishings and personal belongings inside the property, but not the property itself. Normally, only insurance related to the building, or landlord insurance, can be added to the cost base for CGT purposes. Insurance of the contents relates to personal belongings, such as furniture, and is not usually considered a holding cost for tax purposes. Because the property is being sold furnished, the contents will be considered personal assets, so the cost of insuring those assets is not eligible for inclusion in the cost base.
Can Holding Costs Be Added to the Cost Base of an Asset Where the Tenant Pays Those Costs?
Sometimes, depending on who would bear the cost—the landlord himself or the tenant—in Australia, the holding costs could sometimes be added to the cost base of an asset, which may affect the CGT at the sale of the property.
The cost base of the property does not include such expenses if the tenants are liable to pay any expenses such as utilities, council rates, or maintenance. This is because the property owner is not incurring such expenses. In this case, we are dealing with a scenario where the tenants are responsible for paying all the bills.
However, some of the costs directly paid by the owner can form part of the cost base under certain conditions. An example could be where the property was held as an investment but wasn’t rented out; then, some holding costs, such as council rates or interest payments, might be added to the cost base.
This distinction is crucial when selling the property, as eligible holding costs added to the cost base can reduce capital gains tax liability. Property owners should work with tax professionals to ensure they are calculating their cost base accurately and maximizing the tax benefits available under Australian law.
How Are Holding Costs Changing for First Home Buyers?
For first home buyers in Australia, holding costs have become a significant consideration, particularly as the market and economic conditions fluctuate. Recent changes, especially in 2024 and 2025, have led to an increase in some of these costs, making it more challenging for new homeowners to manage their properties effectively. Although some news outlets are promising lower interest rates, we already heard something similar last year and these predictions did not come true.
Another big difference is in interest rates. The Reserve Bank of Australia has been pushing the cash rate in an upward direction, and because of that, mortgage repayments have gone up, mostly for those with variable-rate loans. First-home buyers now have to deal with higher monthly payments, raising their debt burden in the early years of homeownership.
Besides, even though the first-home buyer grants or concessions on stamp duty reduce the initial purchase costs, they by no means overcome the costliness of holding an asset since they do not account for council rates, insurance premiums, and other ongoing expenses, which also keep fluctuating based on location and property type. Furthermore, there is increasing pressure for first-home buyers to invest in energy-efficient upgrades, which, while reducing utility costs over time, require serious upfront investment.
While these factors can make holding costs more expensive for first-time buyers, careful planning and budgeting may help to keep these ongoing financial responsibilities in check.
What Holding Costs Are Deductible in Australia and Under What Conditions?
Some holding costs are tax-deductible in Australia; this happens only for investment properties. Such deductions decrease taxable income, which is extremely helpful for the investor. Following is a list of common deductible holding costs:
- Mortgage interest
- Council rates
- Land taxes
- Insurance premiums
- Property management fees
- Repairs and maintenance
- Utilities (where applicable)
These deductions are available only when the property is producing income, such as rental income. Personal-use properties do not qualify for such deductions, so property investors need to understand their eligibility criteria. “The majority of the expenses involved in owning a rental property can be deducted against your regular income tax bill, which reduces how much overall tax you pay and increases cash flow,” says Chris Dang, an investment property specialist. He also points out that investors often overlook obvious deductions like marketing expenses to find tenants or pest control inspections. Depending on your specific situation, there could be many more tax deductions.
How to Calculate the Holding Cost of a Property?
Chris Dang also enumerates the key steps which normally every investor follows. These are often the biggest chunk of holding costs, especially in heavily mortgaged properties. Now, add in council rates you have to pay, which can be secured from your local council.
Also, add the land tax that may be chargeable and the amount of insurance premiums for building or landlord insurance. Also, include property management services if the property is let out.
Another big line item of holding costs involves routine maintenance and repairs, so estimate how much you might spend annually to keep the property in good condition. Lastly, include utilities that you are responsible for as the owner, especially if the property sits vacant.
Adding these figures will give you an idea of what the overall annual holding costs of your property will be.
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