Discover the difference of claiming depreciation

Did you know you could improve the cash flow available from an income producing property simply by claiming property depreciation?

Many property investors are currently unaware that Australian Taxation Office (ATO) legislation permits them to claim depreciation from their investment property.

So what is depreciation and what difference could the deductions from depreciation mean for you?house scan price cost property tax barcode sale sell rent shop buy

Essentially, there are two types of property depreciation the ATO legislation allows property investors to claim.

A capital works deduction for the wear and tear of the structural element of the building (including fixed irremovable assets) and depreciation deductions for the mechanical or removable plant and equipment assets contained within the property.

Unlike other deductions where you need to outlay money in order to make a claim, depreciation is considered to be a non-cash deduction.

For investors, depreciation deductions can make a real difference to reducing your taxable income and also make a property cash flow positive sooner.

The average first year residential property depreciation claim sees investors receiving between $5,000 and $10,000 in deductions.

This is no small amount, and the difference a depreciation claim could make should never be underestimated.

The ATO does restrict the owners of older properties from claiming capital works deductions based on the construction date of their property, however both new and older property owners can benefit from depreciation deductions.

This is because plant and equipment asset are not limited by their age.

It is the condition and quantity of these items which contributes to their depreciable amount.

Plant and equipment items such as carpets, hot water systems, as well as less obvious items such as bins and door closers often represent a significant portion of the construction costs of a residential property.

These items can therefore result in substantial depreciation deductions for the property owner.

Recent renovations also entitle owners to claim capital works deductions. Even if work was done by a previous owner, the current owner is entitled to claim capital works deductions for structural improvements as well as plant and equipment depreciation for new assets installed in the property.

Case study:

Justin purchased an investment property for $610,000.

Justin’s property was earning a rental income of $550 per week with a total income of $28,600 per annum.

Expenses for Justin’s property, including interest rates and management fees, totalled to $41,028.

This meant that Justin was currently experiencing an annual after tax outlay of $7,830 or a loss of $151 per week from the property.

The table below provides a summary of the Justin’s scenario before and after depreciation was claimed.

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By claiming depreciation, Justin’s annual outlay from the property was reduced to $2,465 per annum or $47 per week.

This made a difference of $104 per week or $5,405 to Justin’s available cash flow for that financial year.

Want more of this type of information?

Bradley Beer


Bradley joined BMT in 1998 and as such he has substantial knowledge about property investment supported by expertise in property depreciation and the construction industry. Bradley is a regular keynote speaker and presenter covering depreciation services on television, radio, at conferences and exhibitions Australia-wide. Visit

'Discover the difference of claiming depreciation' have 4 comments

  1. January 12, 2015 @ 11:30 am Hamish Blair

    This is an important factor in making an investment work.

    Remember that the “cost base” ($610k in this example) is reduced by the depreciation (and I have been advised the cost base is reduced regardless of whether the depreciation is actually claimed!).

    The implication is that if the property is subsequently sold in excess of its depreciated cost base, then there is “depreciation claw back” and Capital Gains Tax is payable. Provided the investor has held the property for > 12 months, then the 50% CGT discount should apply.


    • January 12, 2015 @ 5:28 pm Michael Yardney

      You’re right Hamish
      Depreciation is an important consideration and most investors don’t realise that claiming depreciation alters their cost base for GCT


  2. June 26, 2015 @ 5:13 pm Serena Jason

    Yet today many people are unaware about property depreciation and because of this they are losing their property’s correct values and profit as well.


  3. July 2, 2015 @ 6:40 pm Jammy Bow

    I am also agree with Hamish. we can save our hard earn by doing simple work or just hiring depreciation specialist, infect this is all legal so you would not in problem to showing your taxable income.


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