When calculating the net taxable income or loss from a rental property, it’s crucial not to overlook the often significant deductions available through depreciation. The Australian tax law allows property owners to claim a deduction for the decline in value of furniture, plant, equipment, and buildings used in or part of a rental property. 

1. Furniture Depreciation: 

• Claiming Furnishings: If a property is furnished, landlords can claim the cost of furnishings as a tax deduction over several years. 
• Claim Period: Typically, furniture depreciation spans 5-10 years as per the ATO guidelines. 

2. Building and Equipment Depreciation: 

• Overlooked Depreciation: The depreciation claim for plant, equipment, and buildings is often overlooked. 
• Claim Percentage: Usually, a rate of 2.5% is applicable from the time the property is built, limited to the cost of construction. 
• Quantity Surveyor’s Role: To maximize claims, it’s advisable to involve a quantity surveyor who assesses and calculates depreciation figures. 

3. The Hidden Catch: 

• Capital Gain Adjustment: When selling the property, the cost base needs adjustment by reducing it by the claimed building depreciation, potentially increasing the capital gain. 
• Immediate Cashflow Improvement: Despite the future capital gain adjustment, claiming depreciation can significantly enhance after-tax cash flow during ownership. 

4. Depreciation Schedule: 

• Definition: A depreciation schedule is a detailed list of depreciable items and their decline in value over time. 
• Components: It includes capital works deductions and plant and equipment allowances. 
• Preparation: A quantity surveyor can prepare a depreciation schedule, usually costing $400 to $750. 

5. Methods of Calculating Depreciation: 

• Diminishing Value Method: Allows for a higher claim in the initial years, reducing over time as items age. 
• Prime Cost Method: A fixed claim amount calculated as a percentage of the item’s original value, providing a consistent claim each year. 

6. Consultation with an Accountant: 

• Tailored Advice: Given the complexity, it’s advisable to consult with an accountant or quantity surveyor to determine the most suitable method for your specific property and circumstances.