We just purchased a property in Western Australia on 5 acres. The property has a house and a shed on it.

We're intending on fencing the area around the house (around 1000 square meters) and renting the house and this portion of the land to tenants.

The remainder of the property will not be lived on, but we don't want to allow the tenants access.

How does this affect what we can claim as expenses for tax purposes. ie loan interest on the property?

The property (all of it) will be subject to capital gains tax. You will need to apportion the interest between the rental portion of the property and the rest of the property.
the interest on the rental portion will go into your rental property schedule and is clearly deductible
the vacant portion is possibly different, there are two options:
1 you can claim "holding costs" as a tax deduction each year, OR
2: you can add the holding costs to the cost base if they are not claimed as a tax dedcution elsewhere....this will reduce the capital gain when you sell it.

moral of the story is KEEP ALL THE DOCUMENTS!!!!

its always a lot harder to reconstruct this stuff than it is to keep the actual information. So keep everything. Rates, interest, fencing, clearing, every thing.

cheers

BC