About Tyron Hyde
Tyron Hyde is the CEO of Washington Brown Quantity Surveyors. He is regarded as one of the industry's leading experts in property tax depreciation, is regularly quoted in the media & asked to speak at conferences.
Tyron hosts a podcast called "Ten with Ty" where he interviews Australia's most successful investors as a lasting legacy for his daughter and followers, teaching them how to build and maintain wealth.
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Tyron has a Degree in Construction Economics (UTS) and is a Fellow of the Australian Institute of Quantity Surveyors. He began his career at Washington Brown in 1993 as a wide-eyed intern looking for a break in the industry. Twenty eight years later, he is now the sole owner of Washington Brown Depreciation Pty. Ltd.
With his passion and knowledge of property depreciation, Tyron is a regular speaker at industry conferences and is often quoted in national media. He has also published numerous articles and books including his popular Keep Claiming It book.
Why You Need A Tax Depreciation Schedule For Your Rental Property
Missing out on your tax depreciation schedule could cost you hundreds of thousands of dollars in savings.
Property investors and business owners often seek ways to save money and increase cash flow. However, many overlook a significant tool: a rental property depreciation schedule.
The barrier for many is a lack of awareness regarding property depreciation, rental property depreciation schedules and tax deductions. Fortunately, saving money begins with learning more about this topic.
This guide examines property tax depreciation schedules, their components, and how Washington Brown can help you save on property investments.
How will a rental property depreciation schedule help me pay less tax?
Watch the short video below to learn how a depreciation report can save you money:
What Is Property Depreciation?
Property depreciation is the decline in asset value over time due to physical deterioration. This deterioration can apply to the structure you’ve invested in and the contents of the building.
According to Australian tax law, individuals who own real estate used for income-producing purposes are entitled to claim the depreciation of that property against their taxable income.
Deciding to purchase a rental property tax depreciation schedule can help you save hundreds of thousands of dollars that you may not have even known you could save on your investment property.
How much does a depreciation schedule cost?
Get a Depreciation Schedule quote & Pay Less Tax
Do you need to inspect the property?
Since the laws have changed – not very property needs an inspection now. Watch the video to learn why:
What are the Different Depreciation Deductions?
Rental property depreciation rates are based on two parts of the Income Tax Assessment Act.
The first is capital works deductions (Division 43), which help you save money by making claims regarding the building itself. For example, some of the capital allowances that you may be able to claim include items like concrete, brickwork, tiling and roofing.
The second, property plant and equipment depreciation (Division 40), covers fixtures and fittings that you can find within your investment property. Some examples of plant and equipment deductions include items like ovens, dishwashers, and carpets.
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Can All Property Claim Depreciation on Rental Property?
If you’re a commercial property investor, the good news is that there are no restrictions regarding your ability to claim capital works deductions or plant and equipment deductions on any of your properties.
For those who invest in residential properties, the law is more complicated. In the Budget 2017 tax changes, a new law was passed that restricted owners of second-hand residential properties from depreciating “previously used assets” such as ovens, dishwashers, carpets, etc.
The good news is that regardless of when you buy a property, you will still be able to claim the capital works deduction. This represents approximately 85% of the construction cost, provided the property was built after 1987.
Why did the government make these changes? They became more concerned about residential property investors purchasing older properties and claiming high depreciation on their old property.
Fortunately, suppose you purchased your property before 2017 and rented it out during the 2016/2017 financial year. In that case, you can still claim the capital works deduction and the plant and equipment claim on your rental property depreciation schedule.
Understanding this new law is critical to getting the most savings from your older and newer investments.
If you buy a brand-new property, you can still claim the depreciation on the plant and equipment and the building itself. In this way, new property depreciation hasn’t been affected.
New Residential Property Investment Depreciation Case Study – How Pradeep went from a -$565 loss to a $4895 profit in Yr 1
Pradeep, an astute investor, recognised the value of maximising depreciation benefits in his property investment. With careful consideration, he opted for a new apartment, knowing that new properties offer significant advantages in depreciation deductions, particularly with higher-value plant and equipment assets.
As an added bonus, Washington Brown already had the costs for the apartment block that Pradeep bought in, therefore we didn’t need to complete a property inspection and he also saved on the cost of his depreciation schedule service.
Property Profile:
Pradeep’s investment was a new apartment boasting two bedrooms and two bathrooms and spanning 74 sqm. Built in 2020, he purchased the property for $559,000.
| Property Type | New Apartment |
| Bedrooms | 2 |
| Bathrooms | 2 |
| Internal Area | 74sqm |
| Build Year | 2020 |
| Construction Cost | $559,000 |
Depreciation Benefits:
In the first year of ownership, Pradeep was able to claim $15,000 in depreciation, leading to substantial tax savings of $5,882. Over the property’s lifespan, the total depreciation claim could amount to an impressive $329,650.
| 1st Year Claim | $15,000 |
| 1st Year Tax Savings | $5,882 |
| Total Claim | $329,650 |
Financial Impact:
To illustrate the financial impact of Pradeep’s depreciation strategy, a comparison was drawn between scenarios with and without claiming depreciation.
| With Depreciation Claim | Without Claim | |
|---|---|---|
| Rent received at $660 per week | $34,320 | $34,320 |
| Interest (6% of 80% borrowing of $559k purchase price) | -$26,832 | -$26,832 |
| Other expenses (property management, rates, etc.) | -$8,385 | -$8,385 |
| Cash outlay before depreciation (a) | -$897 | -$897 |
| Depreciation Year 1 | -$15,000 | $0 |
| Total tax loss | -$15,897 | -$897 |
| Tax Refund @ 37% (b) | $5,882 | $332 |
| Annual profit/loss to own property = (a + b) | $4,985 | -$565 |
| Weekly profit/loss to own property | $96 | -$11 |
Conclusion:
Pradeep’s investment success highlights the importance of strategic decision-making in property investment. By choosing a new apartment and leveraging depreciation benefits, Pradeep was able to enhance his cash flow and overall profitability. For investors seeking to optimise returns and minimise tax liabilities, investing in new properties with substantial depreciation potential proves to be a lucrative strategy in real estate investing.
What will my potential savings look like?
While your depreciation schedule depends on various factors, you can use Washington Brown’s depreciation calculator to get an accurate estimate of your investment property.
Property Depreciation Calculator
Find out the potential return on a property
How Much Can I Claim In Depreciation Deductions?
The answer to this question depends on a wide variety of factors. For example, the asset’s size, age, and value all play a role in how much you will ultimately be able to deduct once you decide to purchase a tax depreciation schedule.
That said, you can often expect tens of thousands of dollars per annum subject to the property – so it’s well worth investigating.
However, the total will vary from investor to investor, which is why it’s so important to reach out for professional help when seeking to make these deductions on your investment property.
Click here to learn how to calculate depreciation on your rental property, or use the rental property depreciation calculator.
Why Should You Claim Depreciation As a Property Owner?
Real estate, like anything, loses value over time as it begins to experience regular wear and tear. The depreciation is already built into the purchase price when buying a property. With the help of a professional, it’s up to you to calculate how much you can claim.
Maximising your property depreciation deductions is essential, regardless of whether it’s a residential property or commercial.
Not only is it common sense, but it’s good business to maximise your deductions and, in turn, your profits. It plays an integral role in investment property strategies. Many owners miss out on the savings that can be made through depreciation. If you don’t want to let these savings go unclaimed, now is the time to get a tax depreciation report and add the savings to your tax return.
Does The Size Of The Property Matter?
When referring to depreciation, Yes, size does matter!
Generally speaking, the larger the property, the more considerable depreciation. That’s because we base the depreciation on the actual cost of construction.
It makes sense that a three-bedroom unit will cost more to build than a one-bedroom unit – all other things being equal.
And the higher the construction cost – the higher the depreciation deductions available to you