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How does Investment Property depreciation work?



Investment property depreciation can save investors thousands of dollars every year. However, many don’t realise the benefits of it. This often results in many failing to claim depreciation and missing out on maximising their cash flow.

In this article we will answer:

  • What is property depreciation?

  • How does investment property depreciation work?

  • Does property depreciation work differently for older investment properties?

  • How does the 2017 depreciation legislation changes impact property depreciation?

  • What’s involved in completing a tax depreciation schedule?


What is property depreciation?

As a property gets older, its structure and the assets within it wear out – they depreciate. The Australian Taxation Office (ATO) allows owners of income-producing properties to claim this depreciation as a tax deduction. Depreciation can be claimed under two categories – capital works and plant and equipment.

Capital works deductions refer to the wear and tear that occurs to the structure of the property and any fixed items like the roof, walls and driveway. Plant and equipment deductions refer to the same wear and tear of easily removable fixtures and fittings including carpet, hot water systems and air-conditioners.

Depreciation is classed as a non-cash deduction, meaning that investors don’t need to spend any money in order to claim it.

How does investment property depreciation work?

A specialist quantity surveyor can prepare a tax depreciation schedule for any type of investment property. This schedule includes all capital works and plant and equipment depreciation deductions an investment property holds over its lifetime.

The investor’s accountant will use this tax depreciation schedule to determine their depreciation deductions each financial year. These deductions reduce the investors taxable income, meaning they pay less tax.

Does property depreciation work differently for older investment properties?

The essentials of property depreciation applies for all types of investment properties. However, owners of older investment properties need to be aware of their eligibility for capital works allowance deductions.

When a property is constructed before 15 September 1987, capital works deductions aren’t available on the property’s original structure and fixed assets. Lucrative depreciation deductions are still often found on these properties as they have usually undergone some type of renovation that supplies eligible capital works deduction.

How does the 2017 depreciation legislation changes impact property depreciation?

Depreciation legislation changes made in 2017 mean that owners of second-hand residential properties (where contracts exchanged after 7.30pm on 9 May 2017) can’t claim depreciation on existing plant and equipment assets.

Owners of affected properties can still claim depreciation deductions on the new plant and equipment assets they purchase for the property directly and any capital works deductions. On average, capital works deductions make up 85 to 90 per cent of total depreciation claims. 

What’s involved in completing a tax depreciation schedule?

BMT Tax Depreciation makes the process of completing a tax depreciation schedule easy.

After receiving some of the property’s basic information, our expert team will provide a free initial estimate of what to expect in the first financial year. From here, a specialist BMT site inspector will carry out a site inspection of the investment property. The is a vital step as it allows BMT to find every depreciable asset available and ensure ATO compliance.

Following the site inspection, BMT will complete a tax depreciation schedule to provide to the investor and their accountant. The tax depreciation schedule only needs to be completed once as it lasts the lifetime of the property, and can be updated when additions are made to the property

BMT found clients an average of almost $9,000 in first full financial year deductions last financial year. To learn more about depreciation, contact BMT on 1300 728 726.

About the author

BMT is a Quantity Surveying company who specialize in tax depreciation with a personalized approach to every tax depreciation schedule prepared for investment, commercial and rental properties.

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