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Tax Depreciation – What’s Claimable and What’s Not

By Luke O'Kelly

With many deductible items in your investment property that can be claimed on your tax return, it’s worth checking to see what depreciation applies to you.

Here’s what you can claim, what you can’t and who you can ask for advice.

What type of depreciation is available?

For starters, there are two types of depreciation deductions available to property investors:

  • Division 43 capital works deduction.
  • Division 40 plant and equipment depreciation.

Let’s go over the Division 43 capital works deduction first. This depreciation relates to the structural components of a property – things like concrete floors, walls, doors, the roof, and even your tiles. Put simply, this deduction covers almost everything that’s part of the building itself, including any structural renovations made before or after you purchased the property.

How is this depreciation calculated?

The capital works deduction allows you to claim 2.5% of the actual construction costs at the time it was built for up to 40 years. So, for example, if your investment property was built in 2015 with a structural cost of $400,000, that means you can claim a 2.5% deduction worth $10,000 each year for 40 years, or until 2055.

Keep in mind that the capital works deduction only applies to properties built after September 15, 1987; you cannot claim the capital works deduction on properties built prior to this date. However, the good news is that you can still claim the Division 40 plant and equipment deduction on older properties.

Claiming plant and equipment deductions

Unlike the capital works deduction, which covers structural items, the plant and equipment deduction refers to the removable, unattached items within your property. While many investors mistakenly believe that older properties don’t offer many deductions, this valuable tax write-off can still offer you significant savings.

Some examples of deductible plant and equipment items found in investment properties, along with their effective tax write-off periods, include:

  • Carpets and blinds (10 years).
  • Kitchen appliances (10 to 12 years).
  • Ceiling fans (5 years).
  • Smoke alarms (20 years).
  • Garden watering systems (5 years).However, this list is by no means exhaustive. According to the ATO, there are about 6000 different plant and equipment assets that can be claimed on an investment property. Because this information can be difficult to find and to sort through, using the Resi Rates app can help you quickly locate your residential property’s depreciable items and their effective life spans.

What types of depreciation can’t be claimed?

While there are many types of items you can claim, there are a few items that don’t quality for depreciation, such as your property’s land as well as any soft landscaping expenses. And although you can claim the entire residual value of any scrapped items you throw away, demolition is not a depreciable item. However, the bigger issue when it comes to claiming deprecation is investors overlooking valuable deductions that can be claimed, not the other way around.

Getting the right advice

As an investor, maximising your depreciation is key to maximising the return on your investment. With a few basic questions, a qualified quantity surveyor can determine if it’s worth creating a deprecation schedule on your property before you have it done. With most reputable quantity surveyors offering a money-back guarantee on the value of their services, there’s no risk to you.

With many investors missing out on valuable deductions every year, understanding what you can claim on your investment property can help put more money in your pocket at tax time.

Used with permission of BMT

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