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.

 

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

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

100 Aussies: seven charts on who earns, pays, and owns

The Labor government is talking up tax reform to lift Australia’s ailing economic growth. Before any changes are made, it’s important to know who pays tax, who owns assets, and how much people have in their super for retirement.

9 winning investment strategies

There are many ways to invest in stocks, but some strategies are more effective than others. Here are nine tried and tested investment approaches - choosing one of these can improve your chances of reaching your financial goals.

The rubbery numbers behind super tax concessions

In selling the super tax, Labor has repeated Treasury claims of there being $50 billion in super tax concessions annually, mostly flowing to high-income earners. This figure is vastly overstated.

With markets near record highs, here's what you should do with your portfolio

Markets have weathered geopolitical turmoil, hitting near record highs. Investors face tough decisions on valuations, asset concentration, and strategic portfolio rebalancing for risk control and future returns.

Latest Updates

Investment strategies

Finding income in an income-starved world

With term deposit rates falling, bonds holding up but with risks attached, and stocks yielding comparatively paltry sums, finding decent income is becoming harder. Here’s a guide to the best places to hunt for yield.

Economy

Fearful politicians put finances at risk

A tearful Treasury chief, a backbench rebellion, and crashing bonds. What just happened in the UK and why could Australia’s NDIS be headed for the same brutal fiscal reality?

Shares

Investing at market peaks: The surprising truth

Many investors are hesitant to buy into a market that feels like it’s already climbed too far, too fast. But what does nearly a century of market history suggest about investing at peaks?

Shares

Chinese steel - building a Sydney Harbour Bridge every 10 minutes

China's steel production, equivalent to building one Sydney Harbour Bridge every 10 minutes, has driven Australia's economic growth. With China's slowdown, what does this mean for Australia's economy and investments?

Investment strategies

Will stablecoins change the way we pay for things?

Stablecoins have been hyped as a gamechanger for the payments industry. But while they could find success in certain niches, a broader upheaval of Visa and Mastercard's payments dominance looks unlikely.

Infrastructure

An investing theme you can bet on for the next 30 years

Investors view infrastructure as a defensive asset class rather than one with compelling growth prospects. These five tailwinds for demand over the coming decades suggest that such a stance could be mistaken.

Investment strategies

A letter to my younger self: investing through today's chaos

We are trading through one of history's most confounding market environments. One day, financial headlines warn of doomsday scenarios. The next, they celebrate a new golden age. How can investors keep a clear head?

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.