Many Landlords Miss Valuable Tax Perks on Property Renovations

Rising construction costs are increasing potential tax deductions for property investors due to higher depreciation values. However, many landlords are failing to claim everything they are eligible for which is costing them thousands. Despite strong property price growth, a large number of Australia's 2.3 million landlords continue to miss out on key deductions. This is often due to outdated assumptions and confusion following changes to tax laws.

Since the start of the pandemic, building expenses have surged by nearly 40% based on data from the Australian Bureau of Statistics. That rise has pushed up depreciation deductions that property investors can claim. Even so, new research from a leading tax depreciation firm reveals that up to 80% of investors are not maximising their claims. The source of the problem often traces back to a 2017 change in legislation that removed deductions for second-hand plant and equipment items such as carpets and blinds. Many misunderstood the change and believe they lost access to all depreciation benefits.

In reality, that rule did not affect capital works deductions. These allow owners to claim around 2.5% each year for 40 years on the building's construction costs. Properties built after 1987 remain eligible, meaning even older homes can provide thousands of dollars in deductions. Renovations and room extensions done by either the current or a previous owner may still qualify if they are assessed correctly.

The issue is made worse when investors try to save money by avoiding professional advice. Experts note that some landlords skip using licensed quantity surveyors and depend on outdated or incomplete property records. This often leads to major deductions being missed. A properly prepared depreciation report costs around $700, is tax-deductible, and can often be applied to the past two years. This gives landlords a brief window to adjust previous returns and recover unclaimed deductions.

The main message is clear. Ignoring depreciation entitlements can directly reduce rental income performance. As the end of the financial year approaches, landlords are encouraged to work with tax professionals, arrange updated depreciation reports, and review their annual expenses. Although tax planning may not be the most exciting part of real estate investment, it plays a key role in long-term returns.

Source: ATO, HOA, Investax