Have you recently renovated a rental property?

Or, are you considering a future renovation or major repairs?  If so, you should read this!

If you are planning on renovating your investment property, before you talk to an architect, interior designer or builder, first call in your quantity surveyor. Property investors are missing out on thousands of dollars in legitimate tax deductions because they are not claiming the residual write-off allowance on items before they renovate.

What is the Residual write-off allowance?

As long as your property was built after 1985, the residual value allowance relates to capital works deductions on a property you are about to renovate.

It is specific to capital works items, which are depreciated at a rate of 2.5% per annum based upon the original cost over 40 years. It includes items such as bricks, windows, kitchen cupboards, tiling, shower screens, balustrades, light fixtures and taps.

If you are planning on renovating your property, before you demolish any capital works items where the original cost is unknown, get your quantity surveyor in to assess the residual value.

Case Study example

Jack bought an investment property which was built in 1989. The original kitchen and bathroom are in desperate need of a makeover to meet market expectations.

Without an independent estimate by a qualified quantity surveyor, Jack’s tax deduction in regards to this renovation would be zero. Here are the potential deductions he is missing out on.

Original Item
(Installed 1989) 
Estimated Original Value
when installed
Value left when demolished
(20yrs @ 2.5%) = ½ value left
 Kitchen Cupboards  $16,000  $8000
 Kitchen Wall Tiles  $2,500  $1250
 Kitchen Plumbing  $1,700  $850
 Kitchen Electrical  $1,060  $530
 Shower Screen  $1,500  $750
 Vanity  $1,300  $650
 Bathroom Tiling  $4,400  $2,200
 Bathroom Ceilings  $2,700  $1350
 IMMEDIATE DEDUCTION    $15,580

Some key facts about the case study

  • When Jack finishes his new kitchen and bathroom he can start claiming depreciation on those items at 2.5% again.
  • Jack demolished these items voluntarily and was still able to claim the amounts in full.
  • The property was built after 1985 – that’s the year the ATO allowed investors to claim the building allowance.