How to Determine if Your Property Qualifies for Tax Depreciation

  • Posted 26 Aug

How to Determine if Your Property Qualifies for Tax Depreciation

Property investing can be risky and investors sometimes lose money on their properties. But many investors are unaware that their properties can also be a source of tax relief. They do not realise or do not take full advantage of depreciation rules to qualify for significant tax breaks.

So what types of deductions are available and who is eligible to claim them? This article can help you determine if your property is eligible.

Types of deductions

If you own an income producing property, the Australian Taxation Office (ATO) may allow you to claim property depreciation, a move that can help lower your overall tax bill. Property investors have access to two categories of deductions:

  • Capital works deduction (Division 43): This deduction can be used to cover aging and deterioration on your property’s structure. It also covers renovations.
  • Plant and equipment deduction (Division 40): Division 40 deductions cover interior items that need to be replaced over time, such as flooring, appliances, and window treatments.

Any property can be eligible for plant and equipment deductions; there is no time limitation. To use the capital works deduction, however, your investment property must have been built after 15 September 1987. Older properties are considered fully depreciated and cannot claim further structural deductions.

Does my property qualify?

The good news is that most properties qualify for at least some form of depreciation. New buildings offer higher tax breaks, but even older homes can qualify. The first step is to consult a quantity surveyor. He will ascertain which items on your property can be depreciated and give an estimate of the amount you can claim.

If your property was built before 15 September 1987, you cannot claim the initial building cost for depreciation, but renovations will still count. If the property was added to or renovated after that date you can still claim the cost of renovations, even if those renovations were part of past mortgages or were paid for by previous owners or tenants.

Tax authorities estimate that every year between 70 and 80 per cent of property investors fail to maximise the amount they are eligible to claim for deductions. To make sure you take full advantage of the tax law, consult a quantity surveyor before your next tax bill is due.

Making a claim

Before you can claim depreciation losses on your tax forms, you’ll need to create a depreciation schedule. If your property was built before 1987 or you cannot provide thorough documentation for your property’s construction costs, you’ll need to hire a quantity surveyor to create the depreciation schedule.

The depreciation survey that is created is good for a 40-year period or as long as you own the investment property. Many companies offer a guarantee on their work and will not charge you a fee unless they can ensure a minimal amount of deductions. So as a property investor you really have nothing to lose in scheduling a consultation.


If you are searching for your next home loan or thinking about refinancing your property, let Australian Credit and Finance help. Contact our experts today to learn about our mortgage services.

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