Tax Depreciation for Investment Property

Tax Depreciation for Investment Property

In the 2011-2012 financial year, the most recent period Australian Tax Office stats are available for, more than 623,000 Victorians made deduction claims on rental property expenses. The most common were for council rates, 564,890 claims, water charges, 539, 890, insurance, 476, 055, interest on their loans, 474,375, property agent fees, 443, 430, and repairs and maintenance, 437, 625. Less commonly claimed were legal fees, 15, 630, pest control, 19, 575, and cleaning expenses, 62, 835. H&R Block regional director Frank Brass said many property owners were aware of most of the things they could claim – but there were gaps.

Most property investors probably were not claiming everything they could be, according to Mr Brass. “Part of it is it’s so difficult to know what sort of records you need to keep and people just give up on trying to keep them,” he said. “(And) they are scared of doing the wrong thing.” But there is no reason to be. If your records, receipts and invoices are in good order and even if you’ve prepared them yourself, so long as you have done it to the best of your ability and are not being fraudulent, then the tax office is generally understanding, Mr Brass said. He also noted you could claim a fifth of your borrowing expenses for the first five years after you bought.

This compensates stamp duty and legal expenses charged on the mortgage. Meanwhile, Bradley Beer, the managing director at BMT tax depreciation specialists, estimated between 70 and 80 per cent of investors were not getting the maximum return on depreciation claims. “The average first year of deductions for a first full year of owning a property is about $10,000, and over 10 years it’s about $7000 per year,” Mr Beer said. He described depreciation claims as a way of having the value of wear and tear on the structure of your property accommodated by the tax office. “The building is wearing out, even if the property is gaining value,” Mr Beer said. To get the most out of this you would likely need to see a quantity surveyor – and it’s not just new properties that can make claims. “If you bought a house 10 years ago and five years ago spent $100,000 on a renovation, there are things in there that will still be depreciating, even if you have missed the first five years,” Mr Beer said. Plus you can claim from the moment you rent it out, Mr Beer said. The same applies if you buy a renovated property.

Mr Brass said many people were caught out when they redrew against the equity in an investment property for personal use, and did not adjust the amount they claimed for on their interest.

“You are no longer able to claim the full interest on the loan,” he said. “And what has caught people out for many years is they don’t think to apportion the interest.” There are instances where a couple may buy a property in both their names but have one of them make the tax claims and Mr Brass noted people have been caught out by this.

“You need to handle the tax side of the property according to the names on the title,” he said. He also said that if you were claiming depreciation, those claims would be returned to the Government when you sell the property and added to your capital gains tax payment. For holiday home owners it is important to remember you can only claim against them as an investment when you actually rent them out.

If you are planning to sell, the waiver to capital gains tax only applies to your principal place of residence for the time you have lived in it. The 50 per cent reduction to the tax only applies if you have owned the property for more than 12 months.


– Advertising for tenants;
– Owners corporation fees;
– Gardening and lawn mowing;
– Interest on loans;
– Quantity surveyor’s fees;
– Building materials including concrete, floorboards and tiles can be claimed as
– Carpet, garbage bins, mechanised doors and blinds can also be claimed as they age;
– Apartment and unit buyers can potentially also claim against common areas;
– Travel expenses for property inspections;
– Insurance;
*Source: BMT, H and R Block and