Imagine buying a lottery ticket that won you almost $9,000. It would be pretty amazing, wouldn’t it? Think of all the things you could do with the additional money – pay off debt, buy that new lounge, renovate the bathroom.
What if we told you that on average residential rental property investors can claim this amount in depreciation deductions in the first financial year alone, but around 80 per cent fail to do so. This is because depreciation is a non-cash deduction, meaning that unlike expenses such as interest and property management fees, an investor doesn’t have to spend money to be eligible to claim it. As a result, it’s often missed.
If you haven’t been claiming depreciation on your rental property, here are some fast facts to help you better understand what it is and what you can claim.
In this article, we will answer the following questions:
What is rental property depreciation?
As a property gets older, the building’s structure and the assets within it wear out – they depreciate. The Australian Taxation Office (ATO) allows owners of residential rental properties to claim this depreciation as a tax deduction. Depreciation can be claimed under two categories – capital works and plant and equipment assets.
What are capital works deductions?
Capital works deductions relate to claims for the wear and tear that occurs to the structure of the rental property and any fixed items like the roof, walls, doors and kitchen cupboards.
Owners of residential property that commenced construction after 15 September 1987 are eligible to claim capital works deductions. These deductions can be claimed at a rate of 2.5 per cent per year for forty years.
If your rental property was constructed before this date, you should still enquire about the depreciation deduction available as often these buildings have undergone some form of renovation which can result in capital works deductions.
What are plant and equipment assets?
Plant and equipment assets refer to the easily removable fixtures and fittings found within a rental property. Common examples include carpet, blinds, air-conditioners, hot water systems and smoke alarms. Depreciation deductions for these assets are calculated based on their individual effective life as set by the ATO.
Unlike capital works deductions, depreciation for plant and equipment assets was affected by the 2017 legislation amendments.
What are the 2017 legislation changes and why do they matter?
Legislation passed in November 2017 brought about major changes to residential plant and equipment depreciation claims. These changes are important because they affect the amount of depreciation you can claim.
Under current legislation, owners of second-hand residential properties who exchanged contracts after 7:30pm on 9 May 2017 cannot claim deductions for previously used plant and equipment assets.
You can still claim depreciation for any brand-new plant and equipment assets you purchase and install in the property once it is income producing. For example, if you purchase a new hot water system while your property is being leased, you are entitled to claim depreciation for this asset.
What rental properties benefit most from depreciation?
While almost all residential property investors are able to claim depreciation, given the 2017 legislation those who build or buy brand new rental property will usually claim higher deductions.
However, any residential property that has either been built or renovated since 1987 will have a structural claim that will give ongoing deductions for forty years.
I want to renovate my rental property. Should I get a depreciation schedule?
If you’re considering renovating your rental property, it’s important to have a tax depreciation schedule prepared. There may be substantial depreciation deductions available for structural elements and plant and equipment assets removed during the renovation. A process known as scrapping allows investors to claim any undeducted entitlements for eligible assets in the year the items are removed.
It’s important to note that if you live in the rental property while renovating, any newly installed plant and equipment assets will be classed as previously used. This means the assets cannot be claimed. Unless there is good reason, you should only install new plant and equipment assets after you have move out of the rental property and it is available for lease. This will ensure you can claim maximum depreciation deductions.
I bought my rental property fully renovated. Can I claim depreciation for the renovation?
If a rental property is considered to have been substantially renovated by the previous owner for selling purposes, you can claim depreciation on the new plant and equipment assets along with any qualifying capital works deductions available. It must qualify as a substantial renovation, not just cosmetic.
A Quantity Surveyor will estimate anything in the property that is part of a previous renovation and calculate the deductions accordingly. This includes items that may not be so obvious, such as new plumbing, waterproofing and updated electrical wiring. For capital improvements to qualify for the division 43 building write-off, construction must have commenced within specific qualifying dates.
Doesn’t my accountant calculate depreciation for my rental property?
No. Specialist quantity surveyors such as BMT Tax Depreciation are one of the few select professionals recognised by the ATO under Tax Ruling 97/25 as having the skills to estimate construction costs for depreciation purposes. BMT Tax Depreciation often works alongside your accountant to provide the tax depreciation schedule for your property.
How can I claim depreciation on my rental property?
The easiest and best way to claim depreciation on your rental property is to get a tax depreciation schedule prepared for the property.
BMT Tax Depreciation specialise in maximising depreciation deductions for property investors, having completed over 800,000 tax depreciation schedules for residential and commercial properties Australia wide.
In FY 2022/23, BMT found residential clients an average first year claim of almost $9,000.
A BMT Tax Depreciation Schedule last up to forty years and has a one-off, 100 per cent tax deductible fee.
If you’re interested in learning more about depreciation and the deductions you’re entitled to claim for your rental property , Request A Quote or contact one of our expert staff on 1300 728 726.
I own a unit in an 11 floor apartment complex. (Strata titled). The complex is around 16 yrs old I’m probably the 3rd historical owner of this apartment.
If I rent it out can i claim capital works Deductions/depreciation? If so, what figures regarding build cost etc do I need to supply you with? How is total building cost allocated to individual apartment costs?
Hi Ray,
Thanks for your comment.
If the property is income-producing, capital works deductions are claimable, along with any newly installed plant and equipment assets after you move out.
To prepare a tax depreciation schedule, BMT requires your settlement date and purchase price. A site inspection will also be conducted to ensure all deductions are identified and construction costs are accurately estimated.
The building cost is allocated based on the percentage of ownership. We can review the property’s entitlements within the Strata Plan, Building Unit Plans and Plan of Subdivision to determine the exact percentage of ownership.
Thanks,
The BMT Team.
Hi,
If i were to purchase a spec home, i.e. no one has occupied previously, am i entitled to claim depreciation on fixture and fittings or just building?
Thanks
Hi Justin,
Thanks for your comment.
Because the property hasn’t been lived in, the fixtures and fittings (easily removable or mechanical assets) are eligible to be claimed along with the capital works.
Thanks,
The BMT Team.
If I bought a brand new property and leave it vacant for a year only to rent it out in the second year, does the apartment still depreciate in the first year which was vacant? Or does it start depreciating in the second year?
Hi Giselle,
Thanks for your comment.
The property will start depreciating the first year regardless of occupancy.
Deprecation begins on the construction completion date.
Thanks,
The BMT Team.
Hi, I’m wondering how much capital works depreciation is typical for an apartment? I’m looking to buy a 10 year old apartment as a rental property. Can you give me a ball park figure? Thanks.
Hi Tracey,
Thanks for your comment.
It’s difficult to provide a ballpark figure without more information.
For example, a ten-year-old unit that is 100 square metres in size could produce an annual depreciation deduction between $5,100 and $7,100 in capital works deductions.
But numerous factors can change the depreciation available. We recommend giving us a call at 1300 728 726 for an accurate estimate.
Thanks,
The BMT Team
Hi BMT team, very informative article thank you. My question relates to relocating an existing home. If I purchase an existing house and relocate it to my new block of land, would this building be treated as a substantially renovated home at the new location? Would there likely be much depreciation that get ‘reset’ due to the purchase and relocation? Thanks!
Hi Zach,
Thanks for your comment.
If the property hasn’t been substantially renovated as per the ATO’s criteria before moving, it won’t be classed as substantially renovated.
Usually, relocating a building alone doesn’t class as a substantial renovation, however you may be able to claim depreciation on the improvements needed for the relocation such as re-stumping and installing new plumbing, but not on the costs of the move itself.
There could also be further depreciation deductions available on the property depending on when it was built. For example, you can claim capital works deductions (depreciation on the building’s structure and fixed assets) for up to forty years if it was originally constructed after 1987.
Thanks,
We have been claiming the depreciation as per a BMT Report for about five years. However, we are now retired and don’t need to reduce our taxable income. As continuing to claim depreciation is of no benefit to us, and will be added to the cost base of the property when it is eventually sold, can we NOT claim depreciation in future? Thanks.
Hi Sharon,
Thanks for your comment.
Claiming depreciation is a choice and is not compulsory. This means you can ‘opt out’ of claiming it in future years.
We recommend getting in touch with your accountant as they will look at your individual scenario and provide the most accurate advice.
Thanks,
The BMT Team
Hi, I am a first home buyer and I would need to live in a unit for a year to get Grant and Stam Duty removed. Can I still claim a deduction if I rent the property after a year?thanks, G
Hi Gabby,
Thanks for your comment.
If you turn a main residence into an investment property after 1 July 2017 you can only claim deductions on the structural assets as the plant and equipment is considered previously used under legislation changes from 2017 and no longer claimable for depreciation.
Thanks,
The BMT Team
Hi,
In 2020 I bought as investment a 1 bedroom unit (built in 2009) and rent it out during the last financial year.
Can I still claim depreciation on all eligible capital works. For example, the structural element of the property such as the walls and windows?
Thanks and regards
Hi Dario,
Thanks for your comment.
Yes, you can claim depreciation on all capital works. Given that the property was built in 2009, you can claim capital works deductions until 2049.
Please get in touch with our team on 1300 728 726 and we can provide an obligation-free depreciation estimate over the phone.
Thanks,
The BMT Team
Hi,
I have a property that was rented, then i lived in it, then in October 2017 i started renting it out again….
My understanding is i cant claim any further depreciation on it. Is this correct?
Hi Claire,
Thanks for your comment.
This is only partially correct. You won’t be able to claim depreciation on the ‘pre-existing’ plant and equipment assets such as the hot water system, floor coverings and light fixtures.
You will still be able to claim all available depreciation deductions on eligible capital works. This is the structural component of the property like the walls, doors and fixed fixtures. You will also be able to claim depreciation on any new plant and equipment assets you purchase and install for the property while it’s available for rent.
Thanks,
The BMT Team
Hi
I am considering buying a vacant block and having an existing house relocated onto it which I will then rent out. Because this has to go through the same permit process as a new building is it classified as a new build for depreciation purposes?
Cheers
Jacqui
Hi Jacqui,
Thanks for your comment.
The house will still be classed as second-hand for depreciation purposes as even though it is being relocated, assets will still be ‘previously-used’.
For example, if an investor purchased a second-hand oven and put in in their brand-new rental property, they still won’t be able to claim depreciation on the oven although it’s in a new premises.
We hope this helps answer your question.
Thanks,
The BMT Team
Hi,
I have a depreciation report from you on a rental property. I have been claiming at tax time but i am considering taking the property off the rental market to use for family purposes. Is it true that any depreciation unclaimed going forward as the property will not be rented can be held over to offset capital gains when we sell.
Thanks
Hi Don,
Thanks for your comment.
Once the property is used for personal use (e.g. family purposes) no depreciation can be claimed or ‘put on hold’.
If you were to rent the property again, the plant items would be impacted by legislation changes that would not allow you to claim further. This denied depreciation (after removing the amount of deduction lost while used for family purposes) could be used to offset capital gains if a loss is made on those assets when you sell.
When it comes time to sell, you may be eligible for a full or partial CGT exemption if the property is your main residence.
We recommend getting in touch with your accountant if you have any further questions relating to CGT for this property.
Thanks,
The BMT Team
Hi
I have an investment unit which I have held for the past 10 years. The income I derive is no more than $12,000 per annum. $500-1000 spent each year to renovate.
Is there any point doing a depreciation or would it just increase the amount of CGT I would have to pay.
Thanks
Regards
Leon
Hi Leon,
Thanks for your comment.
We recommend speaking to your accountant, who can analyse the numbers for your personal situation. They will look at your income, and how claiming depreciation could benefit your position by further reducing your overall taxable income, including a possible back-claim for the past 2 years.
It is important to note that since you have held the property for more than 12 months, you could be eligible for a 50 per cent discount on any CGT liability.
Thanks,
The BMT Team.
Hi I have an investment unit which I have held for the past 15 years. Is there any point doing a depreciation schedule if I am considering selling the property in the next couple of months or would it just increase the amount of CGT I would have to play.
Thanks
Regards
Sharon
Hi Sharon,
Thanks for your comment.
If you had a tax depreciation schedule prepared now, you would be able to claim depreciation for this financial year, and the previous two financial years. This means you will be able to amend your previous tax returns.
Depreciation can decrease the property’s cost base, but the deductions usually outweigh the increased CGT. It’s also important to note that you may be eligible for the 50 per cent CGT discount given you’ve owned the property for more than 12 months.
Thanks,
The BMT Team
Hi,
We are about to purchase a brand new unit to invest. Wonder how we can get a tax depreciation schedule prepared for the property? the Vendor or third party with fee?
Thanks,
Regards.
Thoa
Hi Thoa,
It would be worthwhile asking your vendor if a complimentary tax depreciation schedule is provided with your property. If not, BMT would be happy to help! Please contact our team on 1300 728 726 for an obligation-free tax depreciation estimate and quote.
Thanks,
The BMT Team
I have just purchased a small rental property with some savings I had accumulated. The income I derive from the investment property is no more than $18,000 per annum (before any tax offsets) I have no other taxable income (I am in pension drawdown) I can’t therefore see the point of claiming capital works depreciation in my particular case because a) I have no tax to pay at the end of the year and b) claiming capital works depreciation now would simply reduce my cost base when I finally come to sell my investment property. Am I missing anything obvious?
Hi Nonetta,
Thanks for your comment.
Based on this information, there would likely be no financial benefit to claiming depreciation on your rental property.
Given we don’t know your full circumstances, it would be best to seek further guidance from your accountant or financial planner.
Thanks,
The BMT Team
Hi.
If I buy a 9 months old unit directly from the builder, which was never sold before, but it has been rented, will I be able to claim depreciation on plant and equipment assets?
Thank you in advance.
Hi Ross,
Thanks for your comment.
If the builder rented out the unit prior to the sale, you may not be able to claim the previously used plant and equipment assets. Generally, you need to take ownership within 6 months of it becoming new residential premises and no longer trading stock of the builder.
However, you can still claim any new assets, plus all eligible capital works deductions. We find that capital works make up on average 85 to 90 per cent of depreciation claims.
Thanks,
The BMT Team
Hi,
Am I correct in saying that if I purchased a house in 2018 and lived in it for a year before renting it out at the beginning of 2020, I am only able to claim the depreciation for things I buy new and put in the rental property (eg, dishwasher)? I can’t claim depreciation for anything that was already in the house like carpets and blinds?
Thanks Amy
Hi Amy,
Thanks for your comment.
Yes, you will only be able to claim depreciation on any new plant and equipment assets you purchased for the property once it was available for rent.
However, you can still claim depreciation on all eligible capital works. For example, the structural element of the property such as the walls and windows. On average, capital works deductions make up 85 to 90 per cent of total depreciation claims.
If you’d like to get an obligation-free estimate of the likely deductions on your property, please call us on 1300 728 726.
Thanks,
The BMT Team
BMT did a depreciation schedule for me in 2015. I am now selling the property and like others I have been surprised by the fact that the depreciation i have claimed has reduced the cost base. My question is as follows. The depreciation schedule is made up of Pooled Plant/Division 40/Division 43. Which one of those has to be deducted from the cost base or is it all of them?
Thanks
Hi Wendy,
Thanks for your comment.
This is a complex area and only your accountant can advise on what can reduce your property’s cost base. They can also discuss CGT discounts and exemptions that may also apply to you.
Thanks,
The BMT Team
Hi BMT,
I have used your services for one of my properties and have been very satisfied with the report that you prvided me.
We finished building one of our properties in the current FY, which was rented as soon as the buiding was finished and another 80’s property which was previously our PPR was also rented in the current FY. While i understand that there will be significant depreciation for the brand new property, will there be aby benefit in getting the depreciation schedule for the 80’s property as well?
And finally, with the Covid-19 restrictions, how do you guys intend to do the property inspections?
Hi Nitin,
Thanks for your comment.
We often find many depreciation deductions for older properties. You could claim any capital works deductions for eligible structural and fixed items. Plant and equipment deductions could also be available for any new fixtures and fittings you installed once the property was used as an investment. The best way to find out if a Tax Depreciation Schedule would be beneficial is to contact our team for an obligation-free estimate.
We have always believed that having a thorough site inspection is essential to achieve the highest possible deductions, while maintaining full ATO compliance. We want to assure you that we take every precaution to ensure the health, safety and wellbeing of our clients and staff during our site inspections. Find out more here https://www.bmtqs.com.au/bmt-insider/site-inspections-vital-for-depreciation-schedules/
If you have any questions, you can contact us on 1300 728 726.
Thanks,
The BMT Team
If I purchased a rental property in 2016 that was built in 1995 and I invest in the depreciation schedule am I able to Claim the depreciation backdated to when I purchased the property or can I only claim from the current financial year
Appreciate your advice
Hi Mark,
Thanks for your comment.
Yes, a BMT Tax Depreciation Schedule allows you to adjust previous tax returns and claim depreciation from when you first owned the property.
Please contact our team on 1300 728 726 for a quote and an obligation-free estimate.
Thanks,
The BMT Team
Hi I have a 1970s rental property I am doing some minor renovations on that will be ready for rent in the coming few weeks.
I am not sure if it would be beneficial for me to do a tax depreciation schedule.
Do you think I will save any $$.
Thank you.
Jon.
Hi Jonathan,
Thanks for your comment.
There could certainly be some worthwhile depreciation deductions available from your renovations. We often find many depreciation deductions for older properties.
Please contact our team on 1300 728 726 for a quote and an obligation-free estimate of available depreciation deductions.
Thanks,
The BMT Team
We have already used your services, for a rental property in Pt lincoln … now we have put a deposit for an apartment at grange 8 mths ago will be finish build app dec 2020 .. hope to rent out at least 30 wks of year & bit concerned with the recent turmoil .. what app would our benefits be for tax fior approx first 5 years ..as apparently there is an “out” paragraph to consider
Hi Julie,
Thanks for your comment.
There are many depreciation deductions available for new properties, even when they are only available for rent for part of the year.
Please contact our team on 1300 728 726 for a quote and obligation-free estimate over the phone.
We also shared some information on the benefits of building a new investment property here: https://www.bmtqs.com.au/bmt-insider/building-an-investment-property/
Thanks,
The BMT Team
The one thing no-one ever tells you is that when you come to sell the property all the depreciation you have claimed affects the CGT and will increase the capital gain which is taxed. We found this out the hard way:
“All of the depreciation that you claim over the years affects the actual capital gain on the property and also the capital gains tax you will pay. Depreciation does not offset the gain; it can actually increase the amount of capital gains realized on the sale of property.”
Hi Neil,
Thanks for your comment.
Depreciation can impact a property’s cost base and therefore can affect CGT. However, it’s important to keep in mind the 50 per cent CGT discount that is available for investors that own an asset for 12 months or more.
You can find out more about the available CGT discounts and exemptions here: https://www.bmtqs.com.au/bmt-insider/when-do-you-pay-capital-gains-tax-on-investment-property/
For any further information on CGT, we recommend seeking advice from your accountant.
Thanks,
The BMT Team