Property depreciation is a tax rebate or deduction that was introduced by the Australian Tax Office (ATO) in the year 1985 to encourage the construction industry and provide much needed rental accommodation for Australia's increasing population. This legislation by ATO provides exceptional tax deductions for those who have invested in real estate in Australia for rental purpose. The holding cost of the property is reduced significantly when a tax depreciation schedule is applied to the property.

However, claiming depreciation on investment property is perfectly legal and it helps reduce the tax burdens on your income incurred through renting that property in its current year. Actually, it simply defers that tax to a later date. It allows all rental property owners in Australia to maintain positive cash flow by taking off the expense from the normal wear and tear on their property.

The tax deductions on property may vary according to the tax depreciation rate that can be calculated using two methods

Diminishing method
Prime cost method

Quantity surveyors in Australia can help you to calculate the tax deductions and prepare a tax depreciation report to claim the deductions.

The investment property depreciation reduces a property investors current year income which he can claim the deductions for. And, these deductions thus claimed are then added back to the basic cost of the property when it is sold. Generally, most of the property investors in Australian look for a long term commitment when it comes to purchasing a property. Hence, property depreciation is a motivating factor for investors as claiming these deductions maximizes their monthly cash flows and helps in quicker loan payoff. Therefore, it makes sense to maximize the depreciation as much as possible, and thus you must hire a quantity surveyor for that.

How much property tax deductions you can claim?

The amount of investment property depreciation you can claim depends on the factors mentioned below:

Plant Assets: The value of plant assets bought with the property at the settlement can be depreciated as they wear out with time.
Building Allowance: The actual cost of building the original structure of the property is considered to wear out. Note that this allowance applies only to properties built after 1985.
The cost of any improvements or renovations and extensions on pre-purchased property for changing the original structure done by the previous owner.
The cost of any expense done by the new owner after the settlement is considered as post purchase expenditure and is included in tax deductions.

An important thing that property investors should consider is that they can claim property tax deductions on new, old, renovated as well as shared properties, and even on the properties that have been owned for many years and have not claimed any depreciation.