Unlocking hidden depreciation deductions: a guide for property managers to maximise tax deductions for landlords

Property depreciation refers to the natural wear and tear which occurs to a property and the assets within it over time. The Australian Taxation Office allows owners of income-producing properties to claim depreciation as a tax deduction. Depreciation is the second largest tax deduction available to property investors, following loan interest, and can be claimed for up to forty years.

As a property manager, you understand the importance of maximising the financial benefits for your clients. From 1 July 2017, the Government has limited plant and equipment depreciation deductions to new plant and equipment purchased by the investor. For residential properties purchased after 9 May 2017, a deduction cannot be claimed for depreciation on second hand plant and equipment, such as those purchased with the property (exceptions exist for depreciating assets purchased with a newly built or substantially renovated property.) Plant and equipment items are the removable fixtures and fittings of a property such as air conditioners, carpets, blinds, ceiling fans and solar panels.

This restriction does not impact the claim for the deduction allowable for capital works, such as the construction cost of the building as well as extensions and structural improvements. A deduction for the cost of these items are generally claimed over 40 years. Investment properties still offer a treasure trove of tax deductions, but many of these can go unnoticed without a trained eye.    

In this article, BMT Tax Depreciation explores five easily missed depreciation deductions, highlighting the importance of a thorough site inspection.

Five commonly missed hidden deductions:

1. Underfloor heating
Underfloor heating is often overlooked but can yield significant deductions of up to $10,000 for an average-sized house. 

2. Re-stumping a home
Older properties may require re-stumping, which involves resetting or replacing the stumps that support a house's subfloor. This necessary improvement can result in a depreciation deduction ranging from around $13,000. 

3. Inconspicuous re-wiring and re-plumbing
Properties that need inconspicuous re-wiring and re-plumbing due to age or damage can generate a total depreciation deduction of approximately $16,000. Even if these improvements were completed by the previous owner, the current owner is still eligible to claim them. 

4. Insulation
Insulation is often hidden away in the ceiling, making it easy to overlook. However, it can contribute to a depreciation deduction of around $4,000. 

5. Sewage treatment assets and tanks
Rural properties often have their own sewage treatment assets and tanks, which are typically hidden from view. Underground sewage treatment tanks and piping can result in a depreciation deduction of $11,600. 

The importance of thorough site inspections
Nearly every inch of a property is depreciable, but accurately determining the maximum amount of depreciation requires a physical site inspection by a trained eye. Failing to claim these hidden deductions can mean your clients miss out on thousands of dollars annually. 

Property managers can help their landlords reduce their taxable income and improve cash flow by educating them on depreciation and referring them to a specialist quantity surveyor. 

BMT Tax Depreciation conduct physical site inspections to ensure that no deductions are overlooked. Unlocking hidden depreciation deductions can make a significant difference to your client's bottom line.

To find out more about depreciation or how to help landlords maximise deductions, call BMT on 1300 728 726 or visit the website.