Depreciation – Positive or Negative Geared Rental Property ?

Road-Sign-House-Prices-Up-Arrow-241x300It never ceases to amaze me how many property investors don’t obtain a depreciation schedule from a quantity surveyor, before trying to get their tax returns completed.

Clients will come in expecting a big tax return to help offset / fund the negative cash flow they have suffered month after month, only to be disappointed, until in many cases we recommend a Quantity Surveyor Report (depreciation schedule).

Once depreciation has been claimed many discover their negative cash flow will actually turn into a positive cash flow. I have on many occasions had the pleasure to show clients that what they thought was a lemon (costing them money) was in fact a positive cash flow property once depreciation was claimed.

Depreciation on an investment property as defined by the ATO is – a non-cash deduction, which may be the key to creating higher paper losses, which then convert to positive cash flows after tax.

The newer the property the higher the depreciation. New properties not only provide higher depreciation, but also provide higher rents, better tenants, and generally much less maintenance and stress.

 Typical with and without claiming depreciation


Std 4 bedroom, double garage houseWithoutdepreciationWithdepreciation
Purchase price$500,000$500,000
Rental income (p.a. @ 5%)$25,000$25,000
Less mortgage (p.a. @ 5%)$22,500$22,500
Less property expenses (p.a. @1.5%)$7,500$7,500
Less depreciation 1st year$13,800*
Tax loss/your tax deduction-$5,000-$18,800
Annual refund based on 34.5% tax rate$1,725$6,486
After Tax Cash flow-$3,275$1,486
Weekly refund if applying for$33$124

 BMT Tax Depreciation Calculator / Umbrella Accountants

Standard house construction – Medium Quality of Finish, 4 bedroom double garage, constructed and purchased in 2014, Brisbane Suburban, 200 m2, estimated cost of construction as at 1st July 2014 $248,519

Assume 90% lend of Purchase Price, Investor’s Taxable income of $75,000 pre investment Property,