Case Study: How to Maximise Tax Savings for an Older Rental Property
Client Overview
James, a property investor, purchased a house in Perth, Australia, built in 1992, for $500,000. In 2024, he decided to rent out the property to generate additional income. Although James knew about tax depreciation, he was unsure if an older property would qualify for significant deductions.
The Challenge
James assumed that because his property was built over 30 years ago, it might not be eligible for depreciation deductions. He also worried about missing on potential tax savings from recent updates made to the property.
The Solution
James consulted with SYC Tax Depreciation, qualified quantity surveyor, who conducted a detailed inspection of the property and identified two sources of tax depreciation deductions:
Capital Works Deductions (Division 43)
As the property was constructed after 1987, it qualified for capital works deductions on the structural components (eg. Walls, roofing, and flooring).
The surveyor calculated these deductions from the original construction date, with James being eligible to claim the remaining years (up to 40 years from construction).
Plant and Equipment Deductions (Division 40)
Items like kitchen appliances, carpets, air conditioning units, and blinds were identified as depreciable assets.
The surveyor calculated depreciation based on the effective life of each item.
Results
In his first year of renting the property, James claimed:
$6,500 in capital works deductions, covering the remaining eligible life of the property’s structural elements.
$8,000 in plant and equipment deductions, from assets replaced or upgraded before renting.
Total first-year deductions $14,500.
Over the next five years, James is projected to save approximately $60,000 in tax, significantly reducing his tax liability and improving his rental property’s cash flow.
Key Benefits for Older Property Investors
Eligibility for Capital Works Deductions: Properties built after 1987, like James’s, can still claim substantial deductions on structural elements.
Depreciation on Renovations: Recent upgrades, even for older properties, can unlock additional tax savings.
Improved Cash Flow: Tax savings allowed James to reinvest in property maintenance and enhance his rental yield.
ATO Compliance: A professionally prepared depreciation schedule ensured accurate and compliant claims.
Conclusion
This case demonstrates that even older properties, like James’s 1992-built house, can yield significant tax savings through a tax depreciation schedule. By consulting a qualified quantity surveyor, James was able to unlock hidden deductions, boast cash flow, and make his rental property a more profitable investment. Property investors with older homes should consider a depreciation schedule to fully realize their tax benefits.
