The following article was sourced from the BMT Quantity Surveyors Newsletter:

Depreciation Differences: Old vs New Properties

BMT Tax Depreciation is often asked by our clients and referrers about the depreciation potential of older properties. Many investors assume it is not worth getting a depreciation report completed on older properties. While it is true that newer properties contain more deductions than older properties, it is always worth getting some advice about the depreciation potential of an older property.

Older Proeprties

Depreciation on the structure of a building is governed by the date that construction began. This may mean that a property might not be eligible to claim depreciation on the original structure. However, investors will still be able to make a claim on the fixtures and fittings within the building. All eligible assets are valued at the time of settlement regardless of their age. Older properties that have had a renovation are also eligible to claim depreciation on the work completed, even if this work was carried out by a previous owner.

New Properties

Owners of new investment properties are eligible to claim depreciation on the building structure and the fixtures and fittings in their property. The effective life of a new building for Australian Taxation Office (ATO) purposes is 40 years (some exceptions apply). This means a brand new property is able to claim the entire construction cost over the life of the property. Properties that are not brand new can claim the residual of the 40 years. For example, if an investment property is 5 years old and its owner wants to claim depreciation on the structure, they have 35 years left of deductions to claim.

Depreciation Differences

                                                          Older Property

                                                (Year of Construction:1972) 

Purchase      Depreciation      Depreciation      Depreciation      Depreciation      Depreciation

   Price              Year 1                  Year 2                  Year 3                    Year 4                  Year 5

$450,000         $6,852                  $5,720                 $4,953                    $3,860                $3,215

                                            Older Property - Renovations

                      (Year of Construction:1978, Renovations completed 10 years ago) 

Purchase      Depreciation      Depreciation      Depreciation      Depreciation      Depreciation

   Price             Year 1                   Year 2                  Year 3                    Year 4                  Year 5

$450,000         $9,560                  $8,475                  $7,395                    $6,252                  $5,607

                                                       New Property

                                              (Year of Construction: 2010) 

Purchase      Depreciation      Depreciation      Depreciation      Depreciation      Depreciation

   Price             Year 1                  Year 2                  Year 3                    Year 4                   Year 5

$450,000       $15,824                $14,017               $12,113                 $10,981               $10,342

If you would like any advice about your investment property scenario, please do not hesitate to contact the office and speak to one of our professionals.