What is depreciation?
Depreciation is the natural wear and tear that occurs to a building and the assets within it over time.
Legislation allows the owners of any income producing property to claim this wear and tear as a tax deduction
Types of depreciation deductions available
The Australian Taxation Office (ATO) clearly defines two types of depreciation allowances available for
- Division 43 capital works allowance
- Division 40 plant and equipment depreciation
The capital works allowance refers to the wear and tear that occurs to the structure of the property. As a
general rule, any residential building where construction commenced after the 15 th of September 1987 will
entitle their owner to capital works deductions at a rate of 2.5 per cent per year for up to forty years. Owners
of older buildings constructed prior to 1987 should still find out what deductions are available, as often these
buildings will have undergone some form of renovation which can result in capital works deductions.
Plant and equipment depreciation refers to the wear and tear that occurs to the easily removable fixtures
and fittings found within the property, including the carpets, blinds, air conditioners and hot water systems.
Under current legislation, owners of second-hand residential properties who exchanged contracts after
7:30pm on 9th May 2017 cannot claim deductions for previously used plant or equipment assets. Investors
who purchase brand-new residential and substantially renovated properties, commercial real estate or add
new plant and equipment assets to a
second-hand residential property can still claim substantial depreciation deductions.
How will depreciation help an investor?
The additional funds an investor receives by claiming depreciation can have a significant impact on their
available cash flow. During the 2017/2018 financial year, BMT Tax Depreciation found residential property
investors an average first year deduction of $8,212. For obligation free advice on the deductions that are
available for any investment property, contact the expert team at BMT Tax Depreciation on 1300 728 726.
Article provided by BMT Tax Depreciation.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax
Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia-wide service.