Building allowance rental property

Updated March 2023

What is Building Allowance for Rental Property?

Abuilding allowance for a rental property is a schedule of all capital works items – newer than September 1987 – and all external capital works items – newer than February 1992.

Within the schedule, each asset is allocated a value. The value is an estimate of the original cost to supply and install the asset.
If the actual costs are available – for example: the builders invoice, then the quantity surveyor will use these figures within the building allowance schedule.
Otherwise, the quantity surveyor will rely on historical construction data to estimate the costs.

Types of Property for Building allowance deductions

Virtually any property can claim building deductions, including:

  • Residential
  • Holiday Let
  • Commercial
  • Industrial
  • Primary Production

Building Allowance deductions on New Homes

With new builds you have the ability to claim depreciation on everything other than the plants, turf and earth.

So not only can you claim the building allowance items but you can also claim the plant and equipment items (division 40).

That means many thousands in tax deductions each and every year.

Building allowance deductions on old Homes

Older properties can still claim tax deductions within the building allowance schedule for any Capital Works items constructed after September 1987. And external works like swimming pools, landscaping, patios, etc if built after February 1992.

You can claim the original construction cost value at 2.5% pa for 40 years (2.5% x 40 = 100%)

Building allowance deductions for Commercial property

Commercial property, whether it be industrial, office space or even cafes and restaurants can claim building allowance deductions at 2.5% pa.
In some circumstances they may be eligible to claim accelerated deductions at 4%pa.
This is true of premises carrying out manufacturing.

For example:
If you have a commercial property that turns sheet metal into downpipes and guttering. Or plastic sheeting into molded chairs, then this is considered manufacturing. And under The ATO legislation on tax deductions you can claim building allowances at 4% pa

What you can’t claim in the Building Allowance

Any structural items built before September 1987 are deemed (by the ATO) too old to depreciate and therefore cannot be claimed as a tax deduction.

Fortunately, most properties have had significant money spent on claimable renovations and improvements over the years since then.

Who should you choose as your quantity surveyor?

I think the answer is WRCQS. As you are guaranteed the best value for money service possible.

There’s at least 140 companies providing tax depreciation schedules in Australia now.
Some are fantastic value for money. Some are overpriced. And some are a total waste of money.

So do your research and choose a qualified quantity surveyor who really knows investment property deductions.

Tip: make sure they send a qualified quantity surveyor to your house to do a physical inspection.
Many send an unqualified tick-sheet guy.
Some don’t send anyone at all!

Have any Questions?

Simply get in touch with me here and I’ll personally address any questions you have.

If you found this helpful, you may also find some of my other articles beneficial too. And to see some real life examples of what our clients have been receiving in tax depreciation deductions, check out our Client Portfolio page

But, often it’s best to simply start at the begining

This article was written by William Callaghan A.A.I.Q.S.
2nd generation Quantity Surveyor and founder of WRC Quantity Surveying

Published March 2023