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.

 

  •   7 June 2016
  • 1
  •      
  •   

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

Does your will qualify for the discretionary testamentary trust exemption?

Treasury has confirmed the exemption many families were hoping for. But buried in the fine print are two conditions that could leave some wills on the wrong side of the exemption, despite years of careful planning.

Ranking three common retirement strategies

The defining challenge of retirement isn't just about building wealth, it's about converting your lifetime savings into sustainable income. A holistic understanding of different strategies can improve long-term outcomes.

Are you making these SMSF mistakes?

After four decades advising investors, there are a few common mistakes I've seen SMSF investors make. From holding too much cash and chasing yield to overtrading and trusting tips. Are these errors costing you?

Australia has saved $4.5 trillion for retirement. Here's what matters more

Most Australians approaching retirement can tell you the exact dollar value of their super account. But success depends on more than a sizeable balance. Here's four key questions to ask yourself at the start of the financial year. 

Lithium's latest drop and what it means for ASX investors

Lithium's latest sell-off has punished ASX miners as prices remain hostage to shifting expectations. The key challenge is navigating a market prone to extreme volatility despite a strong case for the long-term demand outlook.

Retirement spending is not one-size-fits-all

New data challenges the idea that Australians are underspending their super. The bigger issue may be helping retirees navigate complexity, make confident decisions and use their savings to support security, wellbeing and choice.

Latest Updates

Retirement

Will you run out of money in retirement?

Fear of running out has become a defining retirement anxiety. Why do some retirees die with substantial wealth while others deplete their nest egg? Evidence suggests the answer is more complicated than we think. 

Investing

The investment that sidesteps the new tax traps

Tax rules have changed, but many investors are still using yesterday’s strategies. Insurance bonds may offer advantages for those seeking greater control, tax efficiency and certainty about their wealth.

Shares

The role of shareholder yield in a portfolio

Investors may be overlooking a timeless source of returns in a volatile market. The companies that consistently generate and return cash to shareholders have often proved remarkably resilient through uncertainty.

Shares

Australian inflation still well above the RBA's target

The RBA has spent more than three decades pursuing its 2%-3% inflation target. But the numbers tell a far more complicated story than the headlines. The results may surprise both its strongest critics and most loyal defenders.

Retirement

Retirement in reality - 5 months in

Retirement planning doesn't end when work does. Five months in, Joanne reflects on retiring at a different time to your spouse, coping with setbacks and the importance of rest. Some lessons only become clear after the fact.

Latest from Morningstar

What 6 key market indicators are telling investors right now

Are markets still expensive? There are the seven key indicators every investor needs to know. From gold and equities to bonds, oil, bitcoin and the US dollar. The data reveals where opportunities and risks may lie for investors today.

Investing

Can you ride the AI bubble without overpaying?

AI may prove as transformative as the internet, but markets are behaving as if success is guaranteed. As capital races towards unprecedented levels, investors should ask whether enthusiasm is getting ahead of reality.

Sponsors

Alliances

  • ASA-Logo-RGB-ActiveGreen-web.png

© 2026 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.