BELMONT 24A | LOT 1 WALLA LOOP, KYABRAM

Depreciation is the natural wear and tear of a property and the assets within it over time. The Australian Taxation Office (ATO) allows owners of income-producing properties to claim this as a tax deduction, reducing their taxable income.

A tax depreciation schedule is a comprehensive report that outlines the depreciation deductions claimable on an investment property. A depreciation schedule is one of the best ways to maximise the cash return from an investment property each financial year.

An investor can claim depreciation deductions if the property is fully completed and available for rent or already income generating.

• Capital works (Division 43) refers to the structural or fixed elements of a property or building. The value is based on the historical construction costs of the building, including bricks, mortar, walls, flooring, and wiring. Capital works deductions are typically claimed at a rate of 2.5 per cent over the life of the property (forty years) from the construction completion date.

• Plant and equipment (Division 40) assets are items that can ‘easily’ be removed from the property, as opposed to items that are permanently fixed to the structure of the building. This includes assets that are electronic or mechanical in nature, like stoves, ovens, air conditioners and exhaust fans.

Plant and equipment assets are claimed at a rate calculated over the effective life of the asset, as set by the ATO. For instance, a dishwasher has an effective life of eight years with a depreciation rate of either 25 per cent if calculated under the diminishing value method, or 12.5 per cent if calculated under the prime cost method. Assets with a higher starting cost generate higher deductions than those with a lower starting cost. Investors should therefore consider the brand and price range of fittings and fixtures installed in a new property.

New, old and renovated properties will all attract varying depreciation deductions, but a new property will hold the most.

• Newly built properties

Newly built investment properties generally offer higher depreciation deductions than established properties. This is because owners can claim plant and equipment assets for new fixtures and fittings, further enhancing their tax benefits. In the 2022-23 financial year, BMT data shows brand new properties claimed an average of $15,234 in first full-year depreciation deductions.

• Established properties

In most cases, owners of second-hand investment properties cannot claim tax deductions for existing plant and equipment assets due to legislation changes in 2017.  Despite this, there are still thousands of dollars in deductions available for established properties. In the 2022-23 financial year, BMT data found that second-hand properties, ineligible to claim used plant and equipment deductions, still claimed an average of $6,348.

• Renovations

Many older properties undergo ‘substantial renovations’, where all or substantial parts of a building are removed or replaced. Investors can claim deductions for these substantial renovations, starting from the construction completion date, including those renovations performed by the previous owners of the property. Current property owners are eligible to claim depreciation deductions for new plant and equipment assets installed during their renovations, provided they have not resided in the property following the installation.

The ATO has determined that any building eligible to claim the building write-off allowance has a maximum effective life of forty years from the date construction was completed. The owner of a new property is eligible to claim a deduction for the entire cost of the building structure over forty years. Owners of existing property can only claim the remaining years available.

A specialist quantity surveyor like BMT Tax Depreciation will arrange a site inspection, gather the necessary information, and compile a property tax depreciation schedule for you.

If you have questions, please contact one of our expert staff on 1300 728 726 or request a quote.