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How depreciation can create investment property cash flow

What do light fixtures, flooring, garbage bins and shower curtains have in common? They all age, wear out, and
depreciate in value. They are also items that property investors can claim against their taxable income. For owners
of income-producing property, depreciation is a valuable source of tax deductions – and 8 in 10 property
investors don’t maximise them, research from BMT Tax Depreciation indicates.

Depreciation can be a valuable tool for property investors
seeking to improve cash flow and reduce their taxable income,
according to BMT Tax Depreciation managing director,
Bradley Beer.
“Depreciation allows property investors to make claims to the
Australian Tax Office (ATO) for the wear and tear that happens
to a property and its fixtures over time. As depreciation tax
deductions can add up to thousands of dollars, it pays for
investors to understand the scope of deductions available to
them and the cash flow advantages they can deliver.”
During the first 5 years of ownership, when property investors’
cash flow is typically at its weakest, depreciation can make a
big difference, according to Beer. He explains:
“It’s typically a time when investors’ loan to value ratios (LVRs)
are at their highest, and returns are at their weakest. Property
depreciation can relieve some of the financial burden associated
with the purchase of a property during those early years.”

What items can property investors claim?
 A property’s structural assets e.g. the property’s physical
structure, external garages and patios
 Plant and equipment items within the property – e.g.
toilets, flooring and light fixtures
 Common property in apartment buildings or blocks of
flats – e.g. driveways and pools – any part of a property
that tenants have common use of, and to which access
is included in their tenancy agreements
 Common household items such as smoke alarms, door
closers, shower curtains and garbage bins.

Beer recommends that property investors have a depreciation
schedule prepared by a Quantity Surveyor, who inspects the
property, to ensure all items are accounted for and claims are

Written by

Stephen Bonfield, the Managing Director, previously worked for one of Australia’s major home loan companies as an independent mortgage broker. Steve used this experience to set up his own mortgage broking company - a company that places customer needs at the forefront.

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