Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 159

What tax deductions are available to property investors?

When looking to purchase an investment property, there are many important questions. While most investors consider location, purchase price and tenanting ability, depreciation is often overlooked. Depreciation can help unlock the cash flow potential within an investment property, often resulting in thousands of additional dollars for the investor each financial year.

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. Depreciation can be claimed by any property owner who obtains income from their property.

Claiming building structure as a deduction

Capital works allowance 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 which commenced construction after 20 July 1982 are eligible for the capital works allowance.

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

Common depreciable items in an investment property

Plant and equipment items, commonly known as removable assets, are also eligible for depreciation deductions. Each plant and equipment item has an effective life set by the ATO. The depreciation deduction available on each item is calculated using the effective life. Some plant and equipment depreciable items commonly found within a property include:

  • Hot water systems
  • Ceiling fans
  • Dishwashers
  • Carpets
  • Blinds and curtains
  • Exhaust fans
  • Light shades
  • Ovens
  • Furniture
  • Range hoods
  • Smoke alarms
  • Garbage bins
  • Cook tops
  • Door closer

Case study

Amy purchased a nine-year-old three-bedroom house for $610,000 one year ago. Prior to making her depreciation claim, Amy’s investment property was earning a rental income of $495 per week or a total income of $25,740 per annum, while her yearly expenses (including loan interest) totalled $41,028. Towards the end of her first year owning the property, Amy’s annual after-tax outlay amounted to $9,631 or $185 per week, based on her 37% marginal tax rate. Of course, the reductions in taxable income are even more valuable to people in a higher tax bracket.

A thorough site inspection led to a detailed tax depreciation schedule showing the deductions available for her property for the next 40 years, including $9,585 in the first year. The following table provides a summary of Amy’s scenario for the first full year, both before and after depreciation was claimed.

The depreciation deductions in this case study were calculated using the diminishing value method of depreciation. The BMT Tax Depreciation Schedule reduced Amy’s annual outlay for the property to $6,085 per annum or $117 per week, a difference of $68 per week or $3,536 per year.

To claim depreciation, investors should obtain a comprehensive tax depreciation schedule from a Quantity Surveyor. They are qualified under the tax ruling 97/25 to estimate construction costs for depreciation purposes and are one of a few select professionals who specialise in providing depreciation schedules. They are affiliated with industry-regulating bodies and gain access to the latest information and resources through their accreditations.

Claiming depreciation during renovation

Existing assets within a property can be worth thousands of dollars. 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 if they are considering making any renovations to an investment property. They should also update an existing tax depreciation schedule after work is completed to ensure they capture deductions for any new items added to the property during the renovation.

 

Bradley Beer (B. Con. Mgt, AAIQS, MRICS) 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.

 

  •   7 June 2016
  • 1
  •      
  •   

RELATED ARTICLES

Maximising your property tax depreciation and claims

EOFY and new depreciation rules for property

Tax deductions are still available for property investors

banner

Most viewed in recent weeks

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

Four best-ever charts for every adviser and investor

In any year since 1875, if you'd invested in the ASX, turned away and come back eight years later, your average return would be 120% with no negative periods. It's just one of the must-have stats that all investors should know.

The growing debt burden of retiring Australians

More Australians are retiring with larger mortgages and less super. This paper explores how unlocking housing wealth can help ease the nation’s growing retirement cashflow crunch.

Why super returns may be heading lower

Five mega trends point to risks of a more inflation prone and lower growth environment. This, along with rich market valuations, should constrain medium term superannuation returns to around 5% per annum.

Preparing for aged care

Whether for yourself or a family member, it’s never too early to start thinking about aged care. This looks at the best ways to plan ahead, as well as the changes coming to aged care from November 1 this year.

Our experts on Jim Chalmers' super tax backdown

Labor has caved to pressure on key parts of the Division 296 tax, though also added some important nuances. Here are six experts’ views on the changes and what they mean for you.        

Latest Updates

Investment strategies

LICs vs ETFs – which perform best?

With investor sentiment shifting and ETFs surging ahead, we pit Australia’s biggest LICs against their ETF rivals to see which delivers better returns over the short and long term. The results are revealing.

Retirement

The growing debt burden of retiring Australians

More Australians are retiring with larger mortgages and less super. This paper explores how unlocking housing wealth can help ease the nation’s growing retirement cashflow crunch.

The ASX is full of broken blue chips

Investing in the ASX 20 or 200 requires vigilance. Blue chips aren’t immune to failure, and the old belief that you can simply hold them forever is outdated. 

Shares

Buying Guzman y Gomez, and not just for the burritos

Adding high-quality compounders at attractive valuations is difficult in an efficient market. However, during the volatile FY25 reporting season, an opportunity arose to increase a position in Mexican fast-food chain GYG.

Investment strategies

Factor investing and how to use ETFs to your advantage

Factor-based ETFs are bridging the gap between active and passive investing, giving investors low-cost access to proven drivers of long-term returns such as quality, value, momentum and dividend yield. 

Strategy

Engineers vs lawyers: the US-China divide that will shape this century

In Breakneck, Dan Wang contrasts China’s “engineering state” with America’s “lawyerly society,” showing how these mindsets drive innovation, dysfunction, and reshape global power amid rising rivalry. 

Retirement

18 rules for ageing well

The rules to age successfully include, 'the unexamined life lasts longer', 'change no more than one-eighth of your life at a time', 'nobody is thinking about you', and 'pursue virtue but don’t sweat it'.

Sponsors

Alliances

© 2025 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.