You don’t need to be an expert on property depreciation to reap its benefits. 

Australia’s leading property depreciation specialist, BMT Tax Depreciation, has shared their top six depreciation facts to cover the essentials. 

1. Two categories of property depreciation

While you can claim depreciation on many things, each one must fall within the two categories of property depreciation. 

The first category is capital works. This is the structural component of a property such as doors, walls, and windows. On average, capital works make up 85 to 90 per cent of total depreciation claims.

The second category is plant and equipment, which includes the easily removable or mechanical part of the property. Furniture, floor coverings and smoke alarms are just some assets you can claim under plant and equipment. 

2. Depreciation can be claimed for a long time

A common mistake is underestimating how long you can claim depreciation for. 

Capital works deductions can be claimed for up to a huge forty years. The one requirement is that the capital works commenced after 15 September 1987. 

This forty-year period starts from the time the capital work was completed. For example, if you built a structural internal wall in 2000, you could claim depreciation on it until 2040. 

Depreciation timeframes for plant and equipment are slightly more complex. Each plant and equipment asset has its own effective life and rate of depreciation. For example, carpet has an effective life of eight years, while timber floorboards hold an effective life of ten years.

3. Must know depreciation legislation 

There are many tax rulings and legislative requirements surrounding depreciation and claiming it correctly. 

The last major change in residential depreciation legislation came in 2017 when the previously-used plant and equipment provision came into place. This legislation change means that owners of second-hand properties (where contracts exchanged after 7:30pm on 9 May 2017) can no longer claim depreciation on previously-used plant and equipment assets. 

However, this doesn’t mean every second-hand property is ineligible for depreciation. Investor owners can still claim any eligible capital works deduction, in addition to plant and equipment deductions on any new assets they purchase for the property. 

4. The difference between improvements, repairs and maintenance 

Property improvements, such as renovations, must always be claimed using depreciation deductions. All too often they are mistaken for ‘repairs and maintenance’ which can be claimed in full during the same financial year. 

But how do you spot the difference? 

An improvement is when you enhance something beyond its original state. For example, if your property’s timber fence broke after severe weather and you chose to replace it with a whole new Colourbond fence, this would be an improvement. Given that the fence is a structure, you would claim it back using capital works deductions. 

But if you instead replaced the broken parts with the same material it may be classed as a repair and you could claim it back instantly. 

5. Capital works completed by the previous owner

As discussed, any residential property where construction commenced after 15 September 1987 will be eligible for capital works deductions. However, if the property was built before this and had any capital works completed on it since, you can still claim it. This applies even if you didn’t complete the improvement.  

Unlike plant and equipment, you can claim capital works completed by the previous owner. A specialist site inspector will identify every capital works deduction available during the inspection. 

6. There’s one important step to claim maximum amount accurately

A tax depreciation schedule completed by a specialist quantity surveyor is the one way to ensure you claim maximum depreciation deduction compliantly. 

Your accountant will use this schedule every financial year to determine your property’s depreciation deductions. Your schedule lasts the lifetime of the property and is 100 per cent tax deductible. 

BMT Tax Depreciation ensures your schedule results in the highest deductions by completing physical site inspections. The BMT specialist site inspection team knows exactly what to look for to ensure your claim is maximised to its full potential. To find out just how much depreciation you can claim from your property, Request a Quote or contact BMT on 1300 728 726.

This is a sponsored feature article. 

Read more from BMT Tax Depreciation: 

What are the pros and cons of buying a second-hand investment property?

BMT shares the top three depreciation mistakes

Investors must do this key step before the October 31 deadline