What is Tax Depreciation?

Tax depreciation (also known as property depreciation) is a legitimate deduction against assessable taxable income, generated by a residential or commercial investment property.

It works by allowing property investors to deduct a portion of the original costs of plant & equipment and capital works on their investment property each financial year, over the effective life of that item.

The Australian Taxation Office recognises that the value of capital assets gradually reduces over time as they approach the end of their effective life. These assets can be written off as a tax deduction - known as depreciation.

How to Get Maximum Benefit:

If you own an investment property (new or old, large or small), two areas of depreciation are available:

  1. Depreciation on Plant and Equipment; and
  2. Capital Works on the Building.

Different items within a rental property have different rates of depreciation based on the effective life of the item.

Qualified quantity surveyors, have the expertise and knowledge to know which items are depreciable and how savings can be made.

To claim maximum tax benefits on an investment property the Australian Taxation Office (ATO) requires property investors to complete a fully compliant tax depreciation report.

A property depreciation tax report provides a 40-year schedule for capital works allowance (building write-off) and depreciable assets (plant and equipment allowance) on an investment property, ensuring owners receive the maximum tax entitlements.

What can tax depreciation do for investors?

Claiming tax depreciation allowances on an investment property increases its value by giving investors greater return on their investment.

Depreciation allowances combined with additional negative gearing factors such as interest on a mortgage, repairs and maintenance can help investors reduce their taxable income, pay less tax and improve cash flow.

The savings made can then be redirected to other areas, such as an investment mortgage or other debt reduction.

Why should I have a depreciation schedule?

This will help get you a tax refund. The effective life of a asset is used by the quantity surveyor to work out an asset's decline in value. The Australian tax office (ATO) describes an effective life as the period of time that a depreciating asset can be used by any entity to produce accessible income.

Here is a list of some common depreciation items (always check on the website for a up to date list of effective life).

  1. Split system a/c 10 year
  2. Automatic garage door motor 10 years
  3. Blinds 10 years
  4. Curtains 6 years
  5. Carpets 10 years
  6. Ceiling fans 5 years
  7. Cooktop 12 years
  8. Dishwasher 10 years
  9. Exhaust fan 10 years
  10. Floating timber floors 15 years
  11. Garden shed freestanding 15 years
  12. Oven 12 years
  13. Range hood 12 years
  14. Smoke alarms 6 years
  15. Vinyl 10 years