Appreciate the depreciation – what you need to know.

Did you know there are approximately 1.76 million property investors in Australia and that a staggering number DON’T access all the tax breaks available? Is this you?

Around 80% of investors DON’T have a depreciation schedule set up for their investment properties! And of those that do, many underestimate how much they could be claiming.

So here’s the nitty gritty…. The Australian Taxation Office (ATO) allows for depreciation of an asset that has “a limited effective life and can be reasonably be expected to decline in value over the time it is used”[1].There are two main types of investment property expenses that can be depreciated to save you money at tax time:

  1. Wear and tear of fixtures and fittings (either existing or purchased after settlement); and
  2. Capital works expenses (e.g. build or renovation costs).

Generally speaking, depreciation of fixtures and fittings are of most value in the first 5 years after purchase (either by you or the previous owner), whilst capital works deductions can usually be claimed at a constant rate over a 40 year period (from the date the construction was completed). Because capital works are the “big ticket” items in terms of outlay, they tend to grab investors’ attention BUT a lot of smaller depreciable assets that could be claimed are simply not recorded or forgotten.

And this is why you MUST seek expert advice on which items can be included in your property’s depreciation schedule.

Many fixtures and fittings are eligible including security systems, air conditioners, water pumps, carpets and blinds, ovens, range hoods, floating floor boards, roller doors and dishwashers etc.

For a more comprehensive list, check out the Individuals Guide to Depreciating assets on the ATO’s website https://www.ato.gov.au/Individuals/Tax-return/2016/In-detail/Publications/Guide-to-depreciating-assets-2016/

If your investment property forms part of a community corporation, then the fittings and fixtures in common areas such as gym equipment, security systems, carpeted entrances or stairwells can also be claimed in proportion to your share in the corporation.

But the BEST thing about depreciation claims is that you don’t necessarily have to spend more money to make the claim!! If you purchase and existing property, the ATO allows you to claim on fixtures and fittings or capital works that may have been purchased/carried out by the previous owner, but are still within the claimable period. To do this you will need to obtain a tax depreciation schedule from a specialist Quantity Surveyor, and whilst they will charge a fee – their fee is also tax deductible!!

So, if you are reading this and realise you fall into the bucket of investors that didn’t set up a depreciation schedule don’t despair – we have good news for you!!

In the same way the ATO can pursue you for your unpaid taxes for years gone by, investors can also go back and amend previous tax returns where you didn’t claim, but could have. To find out if you are eligible to do this, you will need to speak to your Accountant and get advice specific to your situation. As Conveyancers, we strongly urge you to have this conversation to maximise the tax benefits of investing in property. Talking to your Accountant about your strategy can save you big bucks.

Happy Investing!

 

For more information on Depreciation Schedules – contact – BMT Quantity Surveyors   and for Accounting advice contact – We All Count.

[1] Guide for taxpayers with depreciating assets, Guide to depreciating assets 2016, Australian Government, ATO,p 3.

 

* This article is general in nature, please seek the advice of your Accountant 

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