Myths of Tax Depreciation

This article is by George Kafantaris , Managing Director of Property Education Pty Ltd

This is the second of two articles where I asked the question about the Myths of Tax Depreciation to the experts, one of Property Education’s key alliances, BMT and Assoc. Quantity Surveyors.

Many property owners are not claiming the maximum tax depreciation and capital allowances on their investment properties. Any building, irrespective of age, will attract some tax credit for depreciation with respect to the plant & equipment items contained within the property including air conditioning, carpets, kitchen appliances, hot water services, etc. In addition some buildings will qualify for a Division 43 capital works allowance.

Case Study 1:
Michelle & Jason purchased an investment property constructed pre-1985.  Therefore, they were ineligible for the Division 43 capital works allowance.  The property however contains Plant & Article items that are eligible to be claimed under Division 40.  Items such as air conditioning, blinds, carpet, cook top, smoke alarm and hot water system all classify.

Michelle & Jason’s Claim
Division 40:
Plant & Articles identified
Year 1 Depreciation:  $3375         Year 4 Depreciation:  $2080
Year 2 Depreciation:  $3150         Year 5 Depreciation:  $1200
Year 3 Depreciation:  $2675         Year 6 onwards (total):  $2145
Total Deductions: $14,625

* Implementing the Diminishing Value method of depreciation.

What investors should know:

Your investment property does not have to be new:  Most properties, both new and old, will attract some depreciation deductions.  A common myth is that older properties will attract no claim.  ANY property is worth making an enquiry. You can adjust previous years tax returns:  When a property owner has not been claiming or maximising tax depreciation deductions, the previous four financial years tax returns can be amended easily.


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