Property depreciation is a complex topic for investors, with many failing to take full advantage of the depreciation deductions they are entitled to. 

Depreciation is the natural wear and tear that occurs to a building and the assets within it over time.

The Australian Taxation Office allows owners of income producing properties to claim depreciation as a deduction. 

The two categories of depreciation are division 43 capital works allowance and division 40 plant and equipment. 

Capital works allowance deductions relates to the depreciation of the structure and permanently fixed assets of a property. Capital works include assets such as the walls, driveway and doors. 

Any residential building where construction commenced after the 15th of September 1987 will allow their owner to claim capital works deductions at a rate of 2.5 per cent for up to forty years.

If the property was constructed prior to these dates, any capital works renovations can be claimed as deductions. 

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Plant and equipment deductions relates to the depreciation of fixtures and fittings within the property.

The ATO define these assets as easily removable from the property, and each asset has their own effective life of depreciation.

Plant and equipment include assets such as carpet, blinds and any furniture. 

Owners of second-hand property where contracts were exchanged after 7:30pm on the 9th of May 2017 are not able to claim depreciation on existing plant and equipment. 

Certain plant and equipment assets with a value less than $1,000 can be deducted using a low-value pool.

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Source: BMT

Low-value pool assets can be depreciated at an accelerated rate of 18.75 per cent in the year of purchase and 37.5 per cent every year following. 

Including a depreciation schedule in your tax return will deduct the depreciation from your pre-tax cash flow and maximise your return. Let’s look at an example to see how this works.  

The investor has increased their annual return on their investment property by deducting the depreciation claim of $11,200 from their pre-cash flow. Resulting in a positive difference of $80 per week when compared to not claiming depreciation. 

A BMT Tax Depreciation Schedule covers all deductions available over the lifetime of a property (forty years).

In FY 2018-19, BMT found residential clients an average of almost $9,000 in first-year tax deductions. 

To find out more, Request a Quote or contact BMT's expert team on 1300 728 726.

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