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The Power of Property Depreciation

What exactly is property depreciation?

As a building gets older, items wear out – they depreciate. The Australian Taxation Office (ATO) allows owners of income producing properties to claim this depreciation as a deduction. Unlike other deductions, such as interest on a loan where you need to outlay money in order to make a claim, depreciation is considered a “non-cash tax deduction.”

There are essentially two types of depreciation investors can claim:

1. Capital Works Allowance (Division 43); and 2. Plant and Equipment (Division 40). Capital works allowance is a deduction available on the structural element of a building, including fixed, irremovable assets. It is commonly also referred to as ‘building write-off’ and includes items such as roofs, windows and doors. When calculating the capital works allowance, the building’s historical construction cost is used and then reduced yearly, for up to 40 years from when the structure was built, at 2.5% per annum.

The plant and equipment deduction is available for mechanical or removable assets. This includes items such as carpets, hot water systems, blinds and light fittings.

For plant and equipment, deductions are calculated using the effective life of each fixture or fitting (generally 5-10 years). For example, a dishwasher may be allocated an effective life of 10 years and will be depreciated at 20% per year (using the diminishing value method of depreciation).

New versus old properties

New properties generally attract higher depreciation deductions than older properties. New properties have new fixtures and fittings, so the starting value of those items is higher, resulting in higher depreciation deductions. The same applies to the building write-off allowance. Construction costs generally increase over time, making building write-off deductions on new buildings higher.

Owners of older properties can claim the residual value of the building up to 40 years from construction. For example, if an investment property is 10 years old, the new owner will have 30 years left of the building write-off to claim. Building write-off is governed by the date construction began. If a residential building was built before 18 July 1985, there is no building write-off available. However, investors who own properties built before this date are still able to make a claim on the plant and equipment (fixtures and fittings) within the property and include any recent renovations, even if the renovation was carried out by a previous owner.

The difference in deductions for depreciation write-offs between similar new and old properties are outlined in the table below.

Haven’t claimed deductions?

If you’re part of the 80% of property investors who haven’t claimed entitlements, don’t despair. The ATO permits property owners to amend tax returns for the past two years, allowing them to claim any missed depreciation deductions during this period.

The deductions are not as high on older properties but there are usually enough deductions to make the process worthwhile. If you are one of the many Australian property investors not taking advantage of depreciation incentives, we urge you to contact a quantity surveyor in order to maximise your investment capital.

BMT Tax Depreciation specialises in preparing property depreciation reports for investors all over Australia. For more information call 1300 728 726 or visit

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The Power of Property Depreciation