The single biggest missed opportunity by property investors: Depreciation

The single biggest missed opportunity by property investors: Depreciation
The single biggest missed opportunity by property investors: Depreciation

Property investors do many strange things. They act impulsively, rather than methodically. They dive in without a plan. They make decisions without research. They’ll listen to family members and ignore professional advice.

But the strangest of all the conduct I see from investors is that they will splurge hundreds of thousands of dollars to buy real estate, but refuse to outlay a few hundred dollars to ensure they buy wisely or maximise their return.

Many investors are too lazy (they say busy) to conduct research and too stingy to pay for someone else to do it. Rather than spend a few hundred dollars for professional advice on the price they’re paying, they’ll risk losing tens of thousands by paying too much. They’ll seek to save small change by doing their own inspection, rather than paying a qualified building inspector to ensure there are no issues which could cost tens of thousands to fix.

One of best outlays an investor can make – but one most investors don’t do – is to spend $700 or so on a depreciation schedule which can improve the bottom line by many thousands of dollars each year.

ATO statistics show most Australians who own investment property don’t claim depreciation or fail to maximise their claims. It’s probably the single biggest missed opportunity by property investors.

According to Brad Beer of BMT Tax Depreciation, calls it “hidden cash flow for property investors”. But three-quarters of investors get less than they should in allowable claims.

It’s clear most punters fail to fully understand depreciation and how much it can change the bottom line for an investment property. Many still believe that you need to buy new to get depreciation benefits worth claiming.

ATO figures show property investors will readily claim body corporate fees, agent fees, council rates, borrowing expenses, interest on loans, repairs and maintenance – but miss out on capital works deductions and plant and equipment depreciation.

Beer says 2.5 million property investors claimed deductions in the 2011-12 financial year. Of these investors, about a million received an average capital works deduction of $2,029 while 1.7 million investors claimed an average deduction of $1,139 for plant and equipment depreciation. That suggests a total depreciation claim of $3,168 on average.

And that is well short of what’s achievable. Too many people, it seems, are doing it on the cheap. But rather than saving money, they’re losing thousands per year.

Beer says data collected from tens of thousands of depreciation schedules prepared by BMT suggests the average claim should be around $10,100 in the first full year and $7,350 per year on average over the first 10 years of owning a property.

My own experience with investment properties confirms that. I always get a quantity surveyor to prepare a proper depreciation schedule for each property – and that one-off outlay can be used for the life of the property, with long-term savings of tens of thousands of dollars.

But I regularly meet investors who don’t claim depreciation at all.

You can contact Terry via email or on Twitter.

Terry Ryder

Terry Ryder

Terry Ryder is the founder of

Terry Ryder depreciation

Community Discussion

Be the first one to comment on this article
What would you like to say about this project?