Renovating your investment property can be a smart way to increase your tax depreciation claim, reduce your taxable income, and increase your long-term cash flow. Many property investors overlook the fact that strategic renovations don’t just improve property value—they can also unlock significant tax deductions.
Tax depreciation allows investors to claim deductions for the decline in value of the property’s structure and fixed assets over time. Renovations can increase these deductions by adding new depreciable assets or improving existing ones.
Here’s what you need to know about how property renovations affect your tax depreciation claim and how to make the most of it.
Repairs vs Renovations: What’s the Difference?
Before you dive into renovations, it’s crucial to understand the difference between repairs and maintenance versus capital improvements (renovations), as this affects how and when you can claim deductions:
- Repairs and maintenance (such as fixing a leaky tap or replacing broken tiles) are generally immediately deductible in the year the expense is incurred—if the property was already earning income when the issue arose.
- Renovations and improvements, on the other hand, are considered capital works. These expenses must be depreciated over time and cannot be claimed at once in full in the year of the expense.
What Renovations Qualify for Tax Depreciation?
- Kitchen and Bathroom Renovations
Upgrades to the kitchen and bathroom—like new cabinetry, benchtops, appliances, or fixtures—are eligible for both capital works (for structural elements) and plant and equipment (for appliances and fixtures). These improvements can add both immediate and long-term depreciation deductions. - New Appliances and Fixtures
Upgrading appliances like dishwashers, air conditioners, ovens, and hot water systems can provide substantial tax depreciation deductions. These items fall under “plant and equipment” and typically depreciate over 5-12 years. - Painting as part of a Renovation
When painting is included in a broader renovation—such as repainting after structural changes or refurbishing an entire room—it qualifies as a capital works deduction. It is depreciated at 2.5% per year over 40 years as part of the overall renovation cost. - Energy-Efficiency Upgrades
Adding energy-efficient features, such as solar panels, insulation, double-glazed windows, and LED lighting, qualifies for capital works These upgrades are typically depreciated over 25-40 years, helping to lower your tax burden while improving the property’s sustainability.
How to Claim Renovation Depreciation
To claim depreciation on capital improvements, you’ll need a tax depreciation schedule prepared by a qualified Quantity Surveyor. Accountants are not permitted to estimate construction costs, so engaging a Quantity Surveyor is essential for accurate and ATO-compliant claims.
Our team of experienced Quantity Surveyors specialise in creating accurate, ATO-compliant tax depreciation schedules.
Final Thoughts
Renovating your investment property doesn’t just improve its aesthetic or rental return—it can also work to your advantage at tax time. From kitchen upgrades to painting and energy-efficient additions, many renovations qualify for long-term depreciation deductions.
To ensure you’re claiming every eligible improvement, speak with a Quantity Surveyor and have a professional depreciation schedule prepared.