Depreciation on an investment property | Guides

DEPRECIATION is a legitimate tax deduction and unfortunately even the ATO believes that more than half of property investors don't claim what they are legally entitled to.

Firstly to claim depreciation you will need to employ a licensed quantity surveyor to create a depreciation schedule. This outlines the depreciation allowances that an investor is entitled to.

The schedule reduces your tax liability on assessable income and allows you to make a claim against tax paid. Deductions fall into two categories; they are capital works and plant and equipment allowances.

A capital works deduction refers to the building and any structural improvements. The rate applied is either 2.5% or 4.0% depending on the date of construction.

The second deduction is the plant and equipment allowances which can be depreciated at an accelerated rate. This deduction applies to items such as carpets, appliances and curtains.

To maximise deductions on investments in the first year, you may renovate a property to provide a better rental income. Any interest on the amount borrowed to do these renovations is tax deductible however the improvements will not be. Fixtures and fittings, as long as they are depreciable, may be replaced but should be updated into your depreciation schedule.

Remember it is always best to check with your accountant or financial advisor as to what is the best thing to do in your circumstances.