What is tax depreciation?

As a building gets older and items wear out, they depreciate in value. The Australian Taxation Office (ATO) allows property investors to claim a deduction relating to this wear and tear on the Building, plant and equipment items it contains.

Any owner of an income producing property can claim depreciation. This deduction essentially reduces the investment property owner’s personal taxable income, so you pay less tax!

So what deductions can you claim?

The deductions will vary depending on a range of factors that are unique to your investment property. But to get you thinking, Here’s some example deductions* that could be claimed for an example one-bedroom investment unit that is less than 5 years old.

In the Bedroom you could claim depreciation on:

• Air Conditioning – $2500
• Blinds – $300
• Carpet – $900
• Furniture package – $3000
• Light Shades – $150
• Smoke Alarm – $130

In the Bathroom you could claim depreciation on:

• Light fittings = $90
• Free standing bathroom accessories – $100
• IXL Light/Heaters – $250
• Heated Towel rack – $600

In the Lounge room you could claim depreciation on:

• Light shades – $350
• Ceiling Fans – $250
• Security System – $2300
• Floating Timber Floor Boards – $1800
• Smoke Alarm – $130
• Blinds – $600

In the Kitchen you could claim depreciation on:

• Microwave – $360
• Dishwasher – $1500
• Stove – $2500
• Rangehood – $1350
• Blinds – $400
• Floating timber floor boards – $1500

Note: The above example is provided as an approximate guide only. Example assumes property is less than 5 years old. Approximate deductions obtainable are based on a 1 bed unit, using the diminishing value method of depreciation over the relevant time period.

Your next steps…

I hope this has given you a basic understanding of tax depreciation. Now you understand how important depreciation is, here’s some steps to help you maximise your depreciation:

1. This has only been a overview. As a Property Investor, it’s important that you understand all about depreciation. To help you can download our Free 24 page BMT tax depreciation booklet that will takes you step by step to make sure you claim all the right deductions to maximise your property investment cash flow.
2. If you haven’t already, look at engaging a professional to prepare your depreciation schedule.
3. Once you have understand and have your depreciation schedule, check out exactly how much tax are currently paying by downloading the free tax calculator in the “additional finance and property resources” resources” section on our resources page.
4. Provide the schedule to your accountant to make sure you are claiming the right depreciation amounts.