Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 203

Tax deductions are still available for property investors

When looking to purchase an investment property, most buyers consider location, purchase price and tenanting ability, while depreciation is often overlooked. Depreciation can unlock the cash flow potential within an investment property, often resulting in thousands of additional dollars for the investor each financial year.

Announcements made in the 2017 Federal Budget may change some of the eligibility for depreciation, but investors should not overlook where it remains available.

 

What is depreciation?

As a building gets older, items wear out – they depreciate. The Australian Taxation Office (ATO) allows property owners to claim this depreciation as a tax deduction by any property owner who obtains income from their property.

Capital works deductions are based on the historical cost of the building excluding the cost of all ‘plant’ and non-eligible items. As a general rule, residential buildings which commenced construction after 15 September 1987 and commercial properties after 20 July 1982 are eligible for the capital works allowance.

Although these time restrictions apply, older properties have often undergone renovations. Renovations completed within the legislated dates can also entitle the owner of the investment property to deductions, even if the renovations were completed by a previous owner.

 

Common depreciable items in an investment property

Plant and equipment items, commonly known as removable assets, are also eligible for depreciation deductions (but see comment on 2017 Budget later). Each plant and equipment item has an effective life set by the ATO which determines the deduction.

Some plant and equipment depreciable items commonly found within a property include hot water systems, dishwashers, carpets, blinds and curtains, light shades, ovens, furniture, range hoods, smoke alarms and cook tops.

 

Case study

An investor has purchased a property for $420,000 and is receiving $490 per week in rent for a total income of $25,480 per annum. The estimated expenses for the property include interest, rates and management fees, which total $32,000 per annum. The following scenario shows the investor’s cash flow with and without depreciation. A typical $420,000 unit will show a total deduction of $11,500 in the first full financial year.

In this example, the investor uses property depreciation to go from a negative cash flow, paying out $79 per week, to a positive cash flow scenario, earning $3 per week, saving $4,255 for the year.

 

Claiming depreciation during renovation

When old assets like carpet or hot water systems are replaced during a renovation, the owners may be entitled to claim any residual depreciation as a tax deduction. Property owners should consider a pre-renovation depreciation schedule and update an existing tax depreciation schedule after work is completed to ensure they capture deductions for any new items added during the renovation.

 

Changes in the 2017 Federal Budget

Under proposed changes, investors who exchange contracts on a second hand residential property after 7:30pm on 9 May 2017 will no longer be able to claim depreciation on plant and equipment assets. Investors who purchase a new property will be able to continue to claim these items as previously.

We are currently speaking with government to further understand the intricacies relating to the proposed changes.

 

Claim property depreciation this financial year

To maximise cash flow, investors should engage a specialised Quantity Surveyor to complete a tax depreciation schedule. The fee for a tax depreciation schedule is 100% tax deductible. The schedule will show deductions for the life of the property (40 years) and will ensure the property owner improves the return on their investment.

 

Bradley Beer is the Chief Executive Officer of BMT Tax Depreciation, a leading provider of tax depreciation schedules for investors. This article is general information and individuals should seek their own tax advice.

  •   25 May 2017
  • 2
  •      
  •   

RELATED ARTICLES

Maximising your property tax depreciation and claims

EOFY and new depreciation rules for property

What tax deductions are available to property investors?

banner

Most viewed in recent weeks

Why spending more in early retirement can improve lifetime income

Conventional wisdom encourages retirees to preserve superannuation. But if those likely to qualify for the Age Pension later in life spend a little more today, it may deliver higher lifetime income and a more stable retirement.

Is it time to bail on Australian stocks?

For generations, Australian investors have backed banks, miners and dividends. But has that loyalty come at a cost? A look at the numbers raises an uncomfortable question about where future returns will come from.

Testamentary trusts survived the trust tax. The drafting battle has just begun.

The fight over testamentary trusts looked settled. Then the draft legislation arrived. Hidden in a technical detail is a question that could force many families to rethink wills they thought were already future-proof.

It’s time for LICs to die

A high-profile dividend cut and a prominent fund manager’s apology have reignited a long-running debate. If investors can access similar exposures more cheaply and efficiently elsewhere, what exactly is keeping LICs alive?

Meg on SMSFs: What do we think about reversionary pensions these days?

Reversionary pensions have long been a staple of SMSF estate planning, but are they still the best option? Meg Heffron revisits a once-clear favourite and asks whether changing super rules have shifted the balance.

The new capital gains tax trap for your portfolio

Investors have long accepted one portfolio rule without much question. A major tax shift could change that calculation entirely, forcing difficult trade-offs between risk, discipline and an overlooked cost lurking beneath.

Latest Updates

Exchange traded products

It’s time for LICs to die

A high-profile dividend cut and a prominent fund manager’s apology have reignited a long-running debate. If investors can access similar exposures more cheaply and efficiently elsewhere, what exactly is keeping LICs alive?

Taxation

Will investors be better or worse off under new housing tax changes?

Housing tax reforms have sparked warnings of market turmoil and promises of greater fairness. But after modelling nearly two decades of property data, the results suggest winners and losers may not be who many investors expect.

Retirement

Three considerations before reshaping your legacy plan

Many retirees hope to leave a legacy. Proposed trust tax reforms could force families to rethink. The question is not how much to leave behind, but whether today's inheritance plans will still make sense as circumstances change.

Investment strategies

Why experienced investors still get markets wrong

Retirement is approaching. Markets are noisy. And every headline seems to demand action. The biggest investment risk isn't fear, greed or market volatility, it often arrives disguised as research and sensible risk management.

Shares

Why pay more for less?

Conditions were stacked in favour of professional investors in 2026. Most still fell short, raising questions about where investors should look for value. Meanwhile, an alternative strategy continued to make its case.

Investment strategies

Bleeding air out of the bubble

Equity valuations have fallen sharply over the past year, yet investors have largely been spared the volatility and losses that typically accompany a de-rating. What explains this unusually orderly reset? Here are five key drivers.

Strategy

Has AI gone rogue?

We worry about AI becoming conscious. But what if consciousness isn't the issue? The more unsettling possibility is a machine capable of pursuing objectives relentlessly, without motives, emotions, or awareness of any kind.

Sponsors

Alliances

  • ASA-Logo-RGB-ActiveGreen-web.png

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.