For Individual Depreciation: What Is It & How Does It Work?

Depreciation is an accounting process that recognises that assets wear out over time. In the eyes of the ATO, the "loss in value" of an item you bought for your investment or work is a legitimate expense. By claiming this deduction, you effectively reduce your taxable income, which means more cash stays in your pocket.

Depreciation Deductions for Investors

For many individual taxpayers, depreciation is the second-largest tax deduction available after interest on a loan. If you are an investor or use equipment for your job, you may be sitting on unclaimed tax benefits.

Types of Investments That Qualify

Rental Property: Both residential and commercial properties generate significant depreciation.
Work Equipment: Assets you buy personally to do your job (e.g., high-end laptops, specialised tools, or home office setups).
Motor Vehicles: Cars or vans used for work purposes (excluding your standard commute to and from a fixed workplace).

What Exactly Can You Depreciate?

The ATO splits these into two "Divisions":

Capital Works (Division 43): This is the building’s "bones." It includes the roof, walls, doors, tiles, and fixed items like kitchen cupboards or even a driveway.
Plant and Equipment (Division 40): These are the removable items. Think dishwashers, carpets, blinds, air conditioning units, and hot water systems that are added after your purchase.
Capital Improvements: Did you add a new deck or renovate the bathroom? These new costs are added to your claim.
Borrowing Costs: Fees for loan establishment, lenders' mortgage insurance (LMI), and stamp duty on the mortgage (not the property) are often depreciable over 5 years.

The ATO’s "Effective Life" Rule

The ATO determines how long an asset should last. This is called its Effective Life.

Asset Life: A carpet might have an effective life of 8 years, while the building structure is set at 40 years.
How it's applied: We take the cost of the asset and divide it by its effective life to find your annual deduction.
Improvements: When you renovate, the "clock" for that specific improvement starts from the day the work is finished, regardless of how old the rest of the building is.

Calculating the Claim: Two Methods

When you start a claim, you usually get to choose between two ways to calculate the "drop" in value:

Straight Line (Prime Cost): The asset value drops by the same dollar amount every year. It’s predictable and simple.
Declining Value (Diminishing Value): This method front-loads the deductions. You claim more in the first few years when the asset is new, and the amount decreases over time. Many investors choose this for the immediate tax relief, although it does take longer to complete.

The Depreciation Schedule: Your Roadmap

You don’t have to guess these numbers. A Depreciation Schedule is a professional report that calculates every deduction you can claim for the next 40 years.

How it is put together

A Quantity Surveyor (we recommend BMT Tax Depreciation) performs a site inspection of your property. They photograph, measure, and identify every single item—from the light switches to the foundations—and assign a value to them based on historical construction costs.

How it is used

Once the report is finished, you simply provide it to us. Note: If you advise BMT that AFYF are your accountant, they will provide it directly to us.
We use the data in the schedule to ensure your tax return is 100% accurate and maximised. You only need to order this schedule once for the life of your property.

Why BMT?

Expertise: They specialise in maximising claims that regular accountants aren't legally allowed to estimate. Here
The BMT Process: They handle everything—even contacting your property manager to arrange access so you don't have to.
It’s Free (Eventually): BMT guarantees to find double their fee in deductions in the first year, and the cost of the schedule itself is 100% tax-deductible.

The Golden Rule: Proof of Purchase

While a schedule estimates the value of an existing building, any new purchases you make (like a new laptop for work or a replacement oven for a rental) must be backed by proof of purchase. Keep your receipts, invoices, and bank statements. No receipt, no claim!

Need Help?

Contact our office for personalised advice regarding the depreciation.

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