Tax Depreciation Benefits

Property depreciation of an investment property is a legitimate tax deduction against assessable taxable income.

Property depreciation is not just for the pros.  Anyone who purchases property for income-producing purposes is entitled to depreciate both the items within the building and the cost of the building itself, against their accessible income.  The savings can be substantial.

Below are answers to some of the most common questions about depreciation.

1. What is property depreciation?

There are two types of allowances available:

  • depreciation on Plant and Equipment;
  • and depreciation on Building Allowance.

Plant and Equipment refer to items within the building such as dishwashers, ovens, carpet and blinds etc.

Building Allowance refers to construction costs of the building itself, such as concrete, timber and brickwork. These sorts of costs can be offset against your assessable income.

2. How does a depreciation schedule help me?

It’s quite simple really.   A depreciation schedule will help you pay less tax.  Your taxable income is reduced by the amount that the depreciation schedule specifies.

Depreciation is known as a “non-cash deduction” because it’s the ONLY deduction that you don’t have to pay for on an ongoing basis.  The deductions are in-built within the purchase price of your property. All other deductions, such as interest levies, are expenses that will hurt your hip pocket on an ongoing basis.

 3. Is my property too old to claim depreciation?

Perhaps not.  If your residential property was built after July 1985 you can claim both Building Allowance and Plant and Equipment. If construction on your property commenced prior to this date, you can only claim depreciation on Plant and Equipment. Nevertheless, the savings will still be worthwhile.

The following chart sets out the relevant timelines for differing types of construction.

4. Who can prepare this report?

Real estate agentsProperty Managers and Valuers are not allowed to prepare a depreciation schedule.

If your residential property was built after 1985 your accountant is not allowed to estimate the construction costs. Tax Ruling 97/25 issue by the Australian Taxation Office (ATO) has identified Quantity Surveyors as properly qualified to make the appropriate estimate of the construction costs, where those costs are unknown.

Quantity surveyors are specialists in the accurate measurement of construction costs with a view to maximizing a client’s financial position in relation to their property assets.

5. Will the Quantity Surveyor need to inspect my property?

Site inspections are necessary to satisfy ATO requirements. A trained Quantity Surveyor will ensure all depreciable items are noted and photographed. This guarantees you won’t miss out on any deductions. The documentation can then be used as evidence in the event of an audit.

The best time to get a Quantity Surveyor to inspect your property is immediately after settlement and just before the tenant has moved in.

6. Can I still claim if my property is renovated?

Yes. You will need to know how much you spent on renovations. This is an ATO obligation. If the previous owner completed the renovations you are STILL entitled to claim depreciation. In either case, where the cost of renovation is unknown, a Quantity Surveyor has been identified by the ATO as appropriately qualified to make that estimation.

7. How much will my depreciation schedule cost?

The cost of preparing a tax depreciation schedule varies according to the type of property you’ve purchased, location, size and numerous other factors.  Quantity Surveyors fees are 100% tax deductible.