Five need-to-know facts about property depreciation

Property depreciation is one of the largest tax deductions you can claim as a property investor, yet a staggering number of Perth property owners fail to make a claim for depreciation every year. Claiming depreciation on your investment property and the items within it could help you significantly maximise tax savings (in some cases, thousands of dollars) and improve the cash flow of your Perth property. So what is stopping Perth investors from making a claim? And what claims could you be missing out on?

What is property depreciation?

Property depreciation is a tax deduction you can claim on the decline in value of your property’s structure and fixtures over time. As your property’s structure and internal items become prone to wear and tear as a result of age, you can claim the decline in value against your taxable income.

What can you claim?

As a property investor, you may be entitled to two different types of depreciation:

  • Capital works deductions – If your residential property commenced construction after 15th September 1987, you will be able to claim depreciation for the building’s structure. This includes structural features such as bricks, walls and fixed wiring.

  • Plant and equipment – Regardless of when your Perth investment property was constructed, you can claim a tax deduction for the decline in value of removable assets such as carpets, blinds, dishwashers and stoves. The deduction you receive will be based on the effective life of the asset, as set out on the ATO website.

What do you need to make a depreciation claim?

In order to claim depreciation, a qualified quantity surveyor will need to draw up a tax depreciation schedule for your Perth investment property. The surveyor will assess your property to estimate construction costs and carry out a site inspection to gather evidence of the assets within your property. The resulting property depreciation report will show you what you will be able to claim for the remainder of the forty year life of the asset. If you have any records or information regarding recent renovations and improvements (such as costs and the date the renovations were carried out), this will help the quantity surveyors draw up an accurate depreciation schedule. However, they will still be able to inspect the property for any signs of improvements should you not have this information at hand.

What if the property was built before 1987?

Many investors miss out on property depreciation due to the assumption they are unable to claim depreciation on older properties. However, this isn’t strictly true. Whilst only owners of properties constructed after the 15th September 1987 are eligible to claim for capital works deductions, these limitations don’t apply to plant and equipment assets. Even if your Perth property was built before 1987, you may still be able to claim any renovations or additions made after this date as tax deductions. Whilst some property investors are able to claim depreciation for renovations and improvements made by previous owners, legislation has now changed so that any investors who have purchased a second-hand residential property after 9th May 2017 are no longer eligible to claim depreciation for plant and equipment they haven’t purchased themselves.

What about renovations?

If your Perth property has undergone any renovations or improvements, you should organise another site inspection with a quantity surveyor so they can re-assess the deductions available from these updates. If work isn’t yet underway, you should have a site inspection carried out both before and after the renovations, as you may be able to claim further deductions for the depreciable value of the assets you throw away during the renovation period.

Need help managing your properties?

Whether you need help maximising the value of your Perth rentals or simply don’t have time to manage your rental properties on a day-to-day basis, the Perth property management team at Rentwest can provide the advice and solutions you need to make the most out of your Perth properties.

For more information about our property management solutions, get in touch with our Perth property management team on 08 9314 9888 or email us at rentals@rentwest.com.au

Disclaimer: Whilst this information has been gathered from thorough industry research, please be advised that these are the views of Rentwest. We still advise seeking the assistance of a relevant professional before making a depreciation claim.