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Property investors can save bucketloads – here’s how!

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Are you a landlord or property investor? Do you own properties you’re renting out or making money on?

Great news, guys! If you answered yes to the above, you may be eligible to claim tax deductions for a number of expenses on your property.

While you may already be aware of the deductions you are entitled to, such as claiming Property Manager’s fees, council rates and your repair and maintenance costs, do you stand with property depreciation?


What is depreciation?

Let’s start with the basics. A building and its assets will show wear and tear over time – some scuffs over here, paint peeling over there… it is unavoidable that something which receives so much use will age as time goes on.

Luckily, legislation allows owners of income-producing properties to claim this as a tax deduction known as depreciation.

Unlike expenses such as repairs and maintenance, an investor needn’t spend a cent to claim it (which is the best part!). This is why depreciation is sometimes described as a non-cash deduction.


Who does it apply to?

Owners of both new and old investment properties are entitled to claim depreciation deductions – woo hoo! If you’re hoping to earn back thousands of dollars each year on your investment property, claiming depreciation could be the easiest, most straightforward way to significantly increase your cash flow.

If depreciation isn’t something you have considered before, let’s take a closer look as you could be missing out on earning back significant funds.


How can I claim my investment property depreciation deductions?

Property investors can claim deductions for the depreciation of the building structure via a capital works deduction, as well as for the plant and equipment assets stored within the property. Unsure what that means? Let’s take a look at how the Australian Taxation Office (ATO) defines these two types of depreciation:

  • Division 43 capital works allowance
  • Division 40 plant and equipment depreciation
Capital works allowance

This is what an investor can claim for the wear and tear incurred to the structure of the property. Structural improvements made during a renovation are included.

Plant and equipment depreciation

These are the deductions an investor can claim for the wear and tear occurring to the easily removable fixtures and fittings inside the property.


How does depreciation compare between old and new properties?

If you’re unsure how your old investment property shapes up next to your new one, here’s a quick breakdown for you.

Owners of new properties will receive higher depreciation deductions due to owning properties containing newer fixtures and fittings. That said, every investment property old or new can result in substantial depreciation deductions.

See the table below; this shows the difference between depreciation claims made for new, old and recently constructed residential houses.


Older residential house – constructed 1980
Purchase priceDepreciation year 1Depreciation year 2Depreciation year 3Depreciation year 4Depreciation year 5


Recent residential house – constructed 2005
Purchase priceDepreciation year 1Depreciation year 2Depreciation year 3Depreciation year 4Depreciation year 5


New residential house – constructed 2012
Purchase priceDepreciation year 1Depreciation year 2Depreciation year 3Depreciation year 4Depreciation year 5


In this case, the depreciation values have been calculated using the diminishing value method. Remember though that depreciation can vary drastically even between properties of the same age and price due to the property size and a number of plant and equipment assets held within.

I know it can seem confusing, but there is light at the end of the tunnel. I would never leave you in the lurch!

Who should you contact to calculate and maximise your deductions?

Often an investor will make the mistake of thinking their accountant will claim all of the deductions available in their investment property. When it comes to depreciation, however, it is important to consult a Quantity Surveyor – an expert in this area recognised by Australian legislation.

A Quantity Surveyor holds the necessary knowledge to estimate construction costs for depreciation purposes. They will provide a depreciation schedule outlining the deductions an investor can claim for any specific property at the end of the financial year.

Once you have received this schedule, your accountant can then use the figures outlined to submit your individual income tax return at the end of financial year – and getting this part right matters.

So what are you waiting for? If you’re the owner of a rental property or other investment property, it’s time to speak to the people who will get you on track with earning some significant depreciation costs, so that you can funnel that money back into making your property amazing with renovations (while increasing your property value – cha-ching!) or plod it right back into your savings to watch your money grow.

Want to buy your next property within your SMSF? Click here for more info on how we may assist you.

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