5 Depreciation Points Every Property Investor Should Know (Part 2)
September 4, 2019

1. What is depreciation?

Depreciation is a non-cash deduction the Australian Taxation Office (ATO) allows the owner or owners of an investment property to claim a deduction due to the wear and tear of a building structure (capital works deduction) and its fixtures (plant and equipment depreciation) over time. Depreciation is described as a non-cash deduction, meaning the investor does not need to spend any money to be able to claim it.

2. No property is too old

An investment property does not need to be new to be able to claim depreciation. Though ATO legislation states that owners cannot claim capital works deductions for any residential property in which construction commenced prior to the 15th of September 1987, there are no date restrictions for a claim for the depreciation of plant and equipment assets contained within the property. On average, 15% of the total construction cost of a residential property is made up of plant and equipment, so it is always worth making an enquiry.

If a property owner has not been claiming depreciation or maximising their deductions, the previous two years tax returns can also be adjusted and amended.

3. Deductions are available for forty years

The ATO has determined that any building eligible to claim the building write-off allowance has a maximum effective life of forty years. Therefore, investors can generally claim up to forty years depreciation on a brand new building, whereas the balance of the forty year period from the construction date is claimable on an older property.

Part 3 coming Feb 2016

Article provided by BMT Tax Depreciation.