Not claiming depreciation on rental property

Missed Depreciation on rental property

Have you been renting out your investment property and not claiming depreciation through the use of a tax depreciation schedule?

It’s not the end of the world, but you’re probably not making life any easier for yourself.

Here’s why:

What is the benefit of a tax depreciation schedule?

The major benefit of using a tax depreciation schedule is to reduce your tax bill.

This is achieved by marking off ‘on paper’ losses against your rental income, thereby reducing the taxable amount

A secondary benefit is improved cash-flow for you.
By receiving a tax reduction – or even tax refund – you are improving your bank account cash flow, affording you the ability to further invest in more property or to make improvements your current rental property

or just go on a holiday!

Tax depreciation you’re rental property is missing out on

virtually every rental investment property has tax deduction entitlements waiting to be claimed.
It just depends on a few things

  • How old your property is
  • how big your property is
  • how heavily renovated your property is
  • is it commercial or residential property

For some recent examples of what our clients have been getting in tax deductions check out my client portfolio page

When should you get a depreciation schedule?

You should get a depreciation schedule as soon as practicably possible.
In fact, waiting more than 3 years after you first offered your property for rent can result in lost tax deductions.

That’s because the ATO changed the rules and made it so that you can only backdate your depreciation report 2 previous financial years.

Previously, you could go back as many years as you wanted. Resulting in some very large lump sum tax refunds for some landlords.
I personally think this is the sole reason the ATO put a stop to it.

Who should you get your depreciation report from?

You should get your depreciation report from the most experienced quantity surveyor you can afford. One who will guarantee you a favourable and tax advantagous outcome.

I say this because in the world of tax depreciation reports you really do get what you pay for.

Sure, some companies are particularly expensive (up over $750 for a report) but there’s a massive amount of overheads built into their pricing.

Others are particularly cheap. Under $400 for a report. I’ll say no more on that.

The sweet spot is in the $600-$660 price range.

I liken choosing the best quantity surveyor you can afford to choosing the best Accountant you can afford.

What can you claim as deductions in a depreciation report

Rental property investors can claim tax deductions for any costs incurred on their investment property – so long as it was for the purpose of producing a rental income from the property.

Within a depreciation report you can claim both Division 40 (plant and equipment) and Division 43 (capital works) items.

What you can’t claim depreciation for

You can’t claim depreciation on items the ATO deem (paraphrasing here) to be assets which do not decline in quality with use over time.
for example

  • Plants
  • Soil
  • Turf
  • Mulch

You can still claim the costs of these items as maintenance items when you incur an expense.

Other claimable deductions not found in depreciation schedule

You can still claim deductions for your other overheads.
Items such as:

  • Agent fees
  • landlord insurance
  • accountant fees
  • tax depreciation schedule
  • Rates and Land Tax

We don’t include those items in your depreciation report but be sure to give these costs to your accountant for full deduction.

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 it’s usually best to start at the beginning

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