Tips & Tricks of the Depreciation Trade

9 Ways to Cut Tax Bills Through Depreciation

Firstly, what is property depreciation?

Well, just like you claim the wear and tear of your car against your taxable income or the wear and tear of the desk in your office, you can claim the wear and tear of your property against your taxable income.

But the property must be income producing. You can’t do this on your residential house. Property depreciation laws vary from country to country. I feel we have pretty good depreciation laws in this country. In a lot of countries, you can’t claim depreciation. So we’re lucky in Australia.

In summary, any property depreciation you claim would reduce the taxable income by the amount of depreciation you claim.

Now there are two parts of a depreciation claim:

First part is what’s called the capital works allowance that relates to the building and the structure. It lasts 40 years. This is commonly referred to as the building allowance. Now the amount of the deduction is determined by the actual construction cost, NOT what it costs to buy the property.

And in order for you to claim this building allowance, the property must be bought after 1985 for residential properties.

The second part that we’re going to talk about is what’s called plant and equipment- division 40. It refers to things like ovens, dishwashers, carpets, blinds, and also common property like lifts, fire services, and ventilation systems.

Note: Deductions for plant and equipment items and the following information may only apply if you bought the property prior to May 9, 2017 – Read about the Budget changes here.

Now, the more of this stuff you have in your property, the greater the tax savings. Why? Because this stuff wears out quicker.

Now let’s get into some tips:

1. The higher the building, the higher the depreciation

Why? Because it has more of that plant and equipment stuff that I’m talking about and this stuff depreciates faster. It also has things like gyms, pools, etc.

tips and tricks

2. Old properties depreciate too

You’ve already paid something for it. So while you can’t claim the structure of the building, you may be able to claim the ovens, the dishwashers, the blinds, etc. This is because the plant and equipment is based upon what you pay for it and the effective life of each item can be a benefit. That means that if the carpets is going to last two years, you may be able to claim it over for 50% each year.

And at Washington Brown we are so confident that we actually guarantee our results. So if we can’t get you at least twice our fee in the first year, we won’t charge you!

3. Buy items that actually cost you under $300

For instance, if I was going to buy a microwave, I wouldn’t buy one that costs $330 because I would have to claim it at 20% per annum. However, I’d buy one at $295 because I would be able to claim it immediately.

4. Sometimes furnishing your property can actually result in a greater depreciation deduction

Why? Because the furniture depreciates rather quickly compared to bricks and concrete. So putting things like dining tables, bedding and all that stuff into a furnished Depreciation Quote Scheduleproperty can actually accelerate your claim to the point that if you were to buy $20,000 worth of furniture, you could possibly get a $10,000 deduction in year 1 alone! But you’ve got to be smart about this. You can’t furnish all properties as it really depends on the location. So, this tip does not apply to all properties.

5. The actual construction cost must be used

Now that’s not a tip, that’s in the law. But what we found lately is that there are a lot of properties out there that are actually being sold close to their construction cost – certainly in some areas.

For instance, a property is sold at the original selling price of $95,000 in 2004. Our client just paid $45,000 for it. The original construction was $52,000. Now, I don’t know any other way that you can get a deduction greater than what you pay for something.

tips and tricks

6. Utilise the residual value write-off

If you were to renovate a property that was built after 1985, you should get a quantity surveyor out before you do the renovation so that we can put some values onto items that you are about to remove and you can get a written down value of those items and claim it immediately as a tax deduction.

So if you remove the kitchen, the light fittings, the shelf screens, etc., all that stuff can be written off if your property was built after 1985.

For instance, you bought a property that was built in 1989 and in that property there was a kitchen that was originally installed and you now wish to upgrade it. If you were to demolish now halfway through its effective life, you could get a $10,000 immediate tax deduction for it! However, just remember that the property needs to be income producing before you rip it out.

So the tip here is to get a quantity surveyor out before you renovate a post-1985 property.

7. Always use an expert

Quantity surveyors have been recognised by the Australian Taxation Office to estimate construction costs where the costs are not known. Accountants and valuers for instance, are not allowed to estimate costs unlike quantity surveyors. However, be careful as not all quantity surveyors specialise in this service, but Washington Brown certainly does.

Also, as far as I know, a depreciation report is the only tax deduction that can be subjective and open to interpretation skill. Every other tax deduction is based on what you pay for it.

8. You get more depreciation on a new property

Now let’s have a look at the difference between the depreciation of a new property versus that of a four-year old property. It’s very similar to the effective lives of the property, that in fact, you’ll be surprised. Now, most of the deduction within a property is actually related to the building allowance. However, you’ll definitely get more depreciation on a new property compared to a pre-1985 property.

9. Use the Washington Brown Depreciation Calculator

Now, this is a good tip. You can go online and check the depreciation available on your own property using our calculator, the first calculator that uses live data! You can check new versus old properties, get an accurate depreciation assessment, and the great news is that it’s free!

Now, here are some bonus tips:

tips and tricks don't get a builder to do your report

Bonus tip # 1: Don’t use a builder’s depreciation schedule

Builders are good at building. They miss out items and they sometimes don’t understand that the design and council costs can be included. Let a quantity surveyor do the depreciation schedule for you.

Bonus tip # 2: The type of materials is a huge factor

If you renovate, you might want to consider the type of materials you are going to use. For instance, carpets depreciate over 10 years but the floor tiling will depreciate over 40 so it can add up.

As another example, various types of partitioning may yield varying depreciation allowances. Some depreciate a lot quicker than others.

Moreover, we have air-conditioners and fans as examples too where the depreciation differs…

The types of materials used may vary and in turn, may change the depreciation allowance you can claim. So it pays to consider the item you’re about to install.

Bonus tip # 3: You can claim renovation even if you haven’t done the work

If you buy property that was built in 1900 for instance, but was renovated in 1990 not even by you, you can still claim depreciation. You can claim the renovation cost even if you didn’t do the renovation.

Bonus tip # 4:

Our iPhone app is downloadable from the iTunes store for free, enabling you to get numbers at the tip of your fingers! This great app also works on the iPad. Depreciation Calculator

If you want to crunch the numbers yourself, you need to input the 5 pieces of information below:

  1. Purchase price
  2. Nearest city
  3. The year the property was built
  4. Property type
  5. State of the finish within the property

Then, click calculate and Bingo! You can compare the depreciation deductions between the diminishing value method and the prime cost method!

And if you’re happy with the results, simply get a quote from us and give us a call so we can discuss the property over the phone. It’s all in the power of your hands!

Here are five things for you to take away today:

  1. Old properties depreciate too
  2. You don’t have to buy new to claim renovation
  3. Renovation helps your cash flow
  4. If you’re about to renovate a property that was built after 1985, get us out before you do so
  5. And remember: Always use an expert!

Thank you and if you have any questions, please contact us at 1300 990 612 or send an email to

If you need a depreciation schedule for your investment property – get a quote here or work out how much you can save using our free calculator.

Calculate It! The Property Depreciation Calculator

Whenever I give a seminar about Property Depreciation, I always have a Question & Answer session at the end

In the seminar, I discuss how I created the Property Depreciation Calculator and spoke about how it helps property investors make informed decisions about the type of rental property they want to buy.

Then this guy up the back puts his hand up the back and asks, “What’s so special about your Property Depreciation Calculator?”

“Well”, I say, “Let me tell you…”

“I’m pretty proud of our property depreciation calculator. It took me 4 years to build and is the only one of it’s kind. In fact, it’s the only property depreciation calculator that lets you work out the depreciation of a property based upon a proposed purchase price.”

“You see, I believe you can’t really work out the depreciation of a property by entering an area. And, let’s face it, how many of us know the internal unit area of our property. Do we include balconies, garages, common areas etc… That’s why I think the other calculators on the market that use an area are flawed.”

I’m pretty excited by now, and I go on…

“I’ve got to be honest, when I first started creating this, well, I had more hair!! It was a long and arduous task.”

“I think no two houses are the same. So, basing the depreciation of a property on it’s area is flawed. I wanted to create a property depreciation calculator where people could enter a proposed purchase price and easily get a result.”

Depreciation Quote Schedule“Now, in order to do that we needed to come up with a way where the calculator would grab lots of similar property types, add them up and average them out.”

“That’s why it took 4 years to build. We needed enough data in the calculator to make it a calculator that property investors could use. And today, I’m proud to say, day in – day out… It remains the most used part of our website.”

“We’ve actually got a patent pending on it… Again, a reason why I’m proud.”

If you need a depreciation schedule for your investment property – get a quote here or work out how much you can save using our free calculator.

Buying into the Housing Market?

Learning the basics before buying into the housing market

When Buy Housing Market

One important obstacle to remember with property investment and entering the housing market is that your entry and exit costs are quite high.

You have to consider stamp duty, your advertising and marketing costs when you sell, and the capital gains tax.

Overall, you make your money in property when you’re buying. That is, if you buy right.

Depreciation CalculatorIf you think about the developers, they make money through buying land. When they buy the development site, that’s when they make money; if they buy at the right price.

It’s the same with property investors. When you buy into the housing market at the right time, you should be able to afford to hold the property for an extended period and hopefully over time it will generate income. If you buy something when you’re 30 years old, by the time you’re 50, hopefully your yield as a percentage of your purchase price will be 15 to 20% per annum, which is pretty good. It is like dividend growth from shares.

I know, life obstacles can often get in the way and reasons can appear that force you to sell – you will have children, you could get married or divorced. There are many things that could change your investment strategy over time too. But most people, I think, go into the housing market with the idea of owning for an extended period.

As with any other investment, you’ve got to look at making money from it. People need to understand the entry and exit costs of property, including capital gains implications. I don’t think enough people who sell properties try to work out whether they have made money or not. In order to cover all those costs, sometimes you really need to hold for a while.

A lot of investors don’t factor in the entry and exit costs when they work out their true profit. For instance, if you’ve bought a $500,000 property, you’ve got around $50,000 in entry and exit costs. So you need around 10% profit before you make money. However, once you’ve done that, it is all blue sky.

Work out how much you save using our free property depreciation calculator or make it happen and get a free quote for a depreciation schedule now.

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