Investment property depreciation: Have you taken full advantage of available deductions?

With the approach of tax season, we want to ensure that you make the most of the financial opportunities available to you.

You may already be aware of expenses that you can claim on:

• Council rates
• Property management fees
• Interest on loans
• Repairs and maintenance costs

But are you aware you can also claim for depreciation deductions? A huge percentage of property owners in Australia miss out on property depreciation claims each year. Because it is a non-cash deduction, an investor doesn’t spend money to claim it, and as a result, it’s often overlooked and can make a big difference to your tax deductions.

What is property depreciation?

As a building gets older, its structure and the assets within the building are subject to general wear and tear. In other words, each year, the value decreases and thus, depreciates.

The ATO allows owners of income producing properties to claim this depreciation as a tax deduction.

What can I claim?

Depreciation can be claimed under two categories – 

• Capital works – these relate to claims for the wear and tear that occurs to the structure of the rental property.

Owners of residential property that commenced construction after 15 September 1987 are eligible to claim capital works deductions.

Property constructed before this date? Still enquire about the depreciation deduction available as often some form of renovation will have been carried out which can result in capital works deductions.

• Plant and equipment assets – These refer to easily removable fixtures and fittings found within a rental property – carpets, smoke alarms, air conditioning and blinds for example. Depreciation for these items is based on their individual effective life as set by the ATO.

Under current legislation, owners of second-hand residential properties who exchanged contracts after 7:30pm on 9 May 2017 cannot claim deductions for previously used plant and equipment assets.

It is possible to claim depreciation for any brand-new plant and equipment assets you purchase and install in the property once it is income-producing.

How to claim

The easiest way to claim depreciation on your rental property is to get a tax depreciation schedule prepared for your property.

TaxAssist can arrange for a Tax Depreciation Schedule which covers all deductions available over the lifetime of a property to ensure you maximise your cash flow. The cost of a Tax Depreciation Schedule is also 100 per cent tax deductible.

What information is needed to complete a tax depreciation schedule?

Call in or make an appointment with your local TaxAssist Accountant. They will need your name on the property contract, property address and purchase information to arrange the depreciation schedule.

Our valuation partners can contact the property manager or tenant directly to arrange access to the property, and a property inspection is conducted where all of the depreciable assets will be noted. The original construction cost of the property as well as any renovations will be estimated and recorded by the property inspector. Following this, the tax depreciation schedule will be completed, you will be sent a copy and your TaxAssist Accountant can apply the depreciation deduction to this year's Tax Return.

Next steps

If you have already completed this year's Tax Return, your local TaxAssist Accountant will be able to amend your Tax return with the claimable depreciation. Call us on 02 9608 3707 or contact us here if you'd like further information.

Date published 29 Aug 2023 | Last updated 29 Aug 2023

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.