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Whether you have purchased an established or brand-new investment property, maximising the value from your property is a top priority
What is property depreciation?
Tax depreciation is a tax deduction claimed for the natural wear and tear of an income-producing building and its assets over time. It is generally the second biggest tax deduction for property investors, after interest.
There are two types of depreciation allowances:
- Plant and Equipment
- Capitol Works/Building Allowance
Plant and Equipment refers to removable items within the building like ovens, dishwashers, carpet and blinds etc.
Capitol Works/Building Allowance refers to construction costs of the building itself, such as brickwork and concrete.
Is my property too old to claim depreciation?
If your home was built prior to July 1985 you will only be able to claim depreciation on the Plant and Equipment. Properties built after this date can claim both Plant and Equipment and Building Allowance.
If you are unsure of the age of your home, a Quantity Surveyor can advise you further.
Do I really need a Depreciation Schedule?
Yes! A Deprecation schedule will help you pay less tax. Most deductions are only allowed after an initial purchase/outgoing, such as repairs, interest on loans, levy’s etc.
Depreciation is known as a “non-cash deduction” because it is the ONLY deduction that you don’t have to pay for on an ongoing basis – the deductions are in-built within the purchase price of your property.
All other deductions, such as interest levies, will hurt your hip pocket on an ongoing basis.
Like many other items such as cars and electronics, properties and fixtures have certain lifespans, the government allow you to claim the loss of this against your tax.
My property is renovated – Can I still claim depreciation?
Yes, however the ATO will want to know the original cost of the renovations/improvements. If you are unsure of these costs or the previous owner completed the renovations you are still allowed to claim depreciation. A Quantity Surveyor must be engaged to complete the deprecation report.
Shouldn’t my real estate agent or accountant prepare this report?
The Tax Ruling 97/25 issue by the Australian Taxation Office (ATO) has identified Quantity Surveyors as properly qualified to make the appropriate estimate of the construction/building costs, where those costs are unknown.
Agents, valuers and Accountants are not allowed to estimate the construction costs.
The cost of a depreciation report is also fully tax deductible.
For more information on depreciation, please call Blackbird and Finch 074642 0007