Investing in property can be highly rewarding, especially when you leverage tax benefits like
depreciation. A depreciation report prepared by a specialist quantity surveyor can significantly
boost an investor’s bottom line by allowing deductions for the wear and tear of the property.
Key Components: Capital Allowance and Capital Works
- Capital Allowance (Division 40): Deduct costs related to plant and equipment, such as
appliances and carpets, over their effective life. - Capital Works (Division 43): Also known as building allowance, allows claiming 2.5% of
construction costs annually for up to 40 years for properties built after 1987.
Depreciation Rules for Existing Properties
For existing residential rental properties purchased after May 9, 2017, investors cannot claim
depreciation on previously used plant and equipment assets. However, they can still claim
depreciation on new plant and equipment they install and on capital works (the building
structure) regardless of the property’s age.
- Division 43 (Capital Works) is still claimable on all established or second-hand residential
properties, regardless of when they were purchased – this includes original works (if they
qualify) as well as improvements and additions completed over time. - Division 40 (Plant and Equipment Assets) acquired through the purchase may not be
depreciable annually but are now deductible from profit at sale and help to reduce CGT. - Division 40 (Plant and Equipment Assets) that are replaced brand-new by the investors
after purchases are eligible for depreciation claims.
Summary of Key Benefits:
A depreciation report provides a detailed overview of potential Capital Allowance and Capital
Works items, ensuring all eligible deductions are claimed. This aids in informed financial
decisions, future planning, and taxation compliance. It amplifies the advantages of negative
gearing by increasing the deductible loss without impacting cash flow, making your
investment more tax efficient. Additionally, Capital Allowance and Capital Works deductions
reduce the tax payable for positively geared properties, lowering overall tax liability and
putting more money in your pocket for reinvestment or other expenses.