25 May

With June 30 right around the corner, it’s important that investors understand how depreciation works for their property. 

Depreciation applies to all properties, regardless of their age. Far too many people rule out depreciation on older, second-hand properties when they shouldn’t – and here’s why. 

Depreciation works for all property types

Property depreciation is the natural wear and tear of a building and its assets over time. Investors and business owners alike can claim depreciation on income-producing properties as a tax deduction each financial year. 

This lucrative deduction is available for all eligible property types and assets. Residential examples include: 

• Houses
• Units
• Studios
• Townhouses
• Duplexes. 

Depreciation maximizes cash, despite the property’s age

Both older and new properties can benefit from depreciation claims. But there are several factors that can impact the amount of depreciation claimable. 

• Depreciation for older properties 

The easiest way to understand depreciation for ‘older’ properties is to think of those that are well-established and usually purchased second-hand.

Many myths surround depreciation and older properties – the main being that depreciation isn’t available at all. But this isn’t the case. 

Depreciation on capital works, which refers to the property’s structure and fixed assets, can be claimed for up to forty years where construction commenced after 15 September 1987. 

This means if the older property were constructed before this date, no capital works deductions would be available on the original structure. But for works after this date, deductions could be claimed. 

For example, let’s look at a property that was constructed in 1980 and had a new roof installed in 2000. The current and possible future owners can’t claim capital works deductions on the original structure, but they can claim on the roofing until 2040.

The other category of depreciation is plant and equipment. This covers the easily removable and mechanical assets of a property like floor coverings, hot water systems, furniture, and smoke alarms. 

Legislation changes made in 2017 mean owners of second-hand properties purchased after 9 May 2017 can’t claim depreciation on the property’s existing plant and equipment assets. For example, if there’s a carpet already installed in the property that holds depreciable value, the new owner can’t claim it. 

But this legislation change doesn’t apply to eligible capital works and new plant and equipment assets that the owner purchases for the property. Using the same example above, if the owner decides to remove the existing carpet and replace it with vinyl flooring, they can claim all available deductions on the vinyl. 

• Depreciation for new properties

We define new properties as those that have been recently built but never lived in. Depreciation is often much more straightforward for this group. 

Investors of brand-new property can: 

1. Take advantage of capital works on the original structure for the entire forty-year period. 
2. Claim depreciation on all plant and equipment assets installed. This is possible because brand-new plant and equipment assets aren’t impacted by the 2017 legislation changes. 

The proof is in the numbers 

Still skeptical? The table below shows the first-year depreciation deductions for new and second-hand properties with similar purchase prices. 

Get on the front foot this tax time and order an obligation-free depreciation estimate. BMT Tax Depreciation has prepared over 700,000 tax depreciation schedules, helping thousands of investors get more money back in their pockets. 

To learn more, contact BMT today on 1300 728 726 or Request a Quote, and their expert team will get in touch with you.