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

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.

Testamentary trusts have secured the CGT exemption

Treasury’s latest CGT reform draft delivers a win for testamentary trusts and deceased estates, exempting estate-derived gains from the 30% floor. However, questions on death and divorce rollovers remain unresolved.

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.

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.

How does the 4% rule stack up?

The 4% rule has long been retirement's gold standard. But after a difficult period for investors, fresh analysis suggests a more conservative approach may significantly improve the chances of making savings last.

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.

Latest Updates

Planning

How the typical Australian Family could save $844,350 in taxes

The value of a testamentary trust is not determined by wealth alone. Depending on circumstances, it can reduce the tax burden on inherited income, create efficiencies and help build intergenerational wealth.

Superannuation

There's a reason why your super is locked up until your 60s

For decades, it seemed settled. Then one controversial idea reignited a debate that could reshape the financial future of millions. The real question isn’t who’s right or wrong, but whether a long-held assumption deserves another look.

Property

The housing slide could become a crash

House prices are sliding across Australia, yet the most dangerous ingredient for a housing crash is still missing. If job losses surge amid growing economic risks, today's correction could become a historic property downturn.

Retirement

Under-retiring: The greatest retirement risk in a generation

Two retirees. Similar savings. Completely different lives. New research from Challenger reveals why some Australians confidently spend in retirement while others hold back and the overlooked factor shaping retirement decisions.

Five risks to watch in markets

Things you may often hear are: a recession is around the corner, markets are overpriced, the AI sector is about to flop at any moment. It’s like the never-ending laundry pile that sits in my house, it never really disappears.

Investment strategies

Do you qualify as ‘rich’?

What does it mean to be 'rich'? For something so universally desired, it is surprisingly difficult to define. That ambiguity creates a challenge for investors and raises a bigger question about what financial success really looks like.

Investment strategies

If you’re worried about your bond portfolio, you’re missing the point

Most investors think they know what bonds are for. But when markets turn volatile, a surprising misunderstanding can lead to costly decisions. Here’s the overlooked lesson that could change how you view your portfolio.

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.