When doing their tax return, property investors should be wary of rules surrounding depreciation. Image – Canva.
  • Investors not updating depreciation schedules risk scrutiny from the ATO
  • Renovations can only be claimed through depreciation and pooling
  • Warnings along with ATO investigations, investors could be left out-of-pocket

Property investors who fail to capture rental property improvements in an updated tax depreciation schedule risk making inaccurate claims, according to quantity surveyors BMT Tax Depreciation.

BMT Chief Executive Officer, Bradley Beer, said investors who have renovated and not updated their schedules before lodging their tax return could risk not just scrutiny from the Australian Tax Office (ATO), but could also face being left out-of-pocket.

“There are nuances when it comes to claiming work on investment properties, with differences between how a renovation and general maintenance is claimed at tax time,” explained Mr Beer.

As the ATO has previously warned, while some property alterations can be claimed immediately, some can only be claimed through depreciation and pooling.

“A rental property improvement is a renovation where something is improved beyond its original state. It must be claimed with depreciation,” continued Mr Beer.

“Because improvements are often required due to wear and tear or damage, investors mustn’t mistake them as repairs or maintenance, and should include them in their tax depreciation schedule.

Bradley Beer, BMT Chief Executive Officer

“An improvement is retiling a bathroom, while fixing cracked plaster is a repair and oiling a deck is maintenance.”

While Mr Beer acknowledged it’s tempting to claim improvements as repairs and maintenance as the full amount. He warned a such a choice will come under harsh scrutiny.

“Immediate deductions are available to certain assets that cost less than $300. For example, a ceiling fan worth $290 can be immediately deducted in the financial year of purchase.”

“Depreciation can be claimed on some assets for up to forty years. Therefore, the small effort of updating the schedule now pays off throughout the lifetime of the investment,” he concluded.


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