While depreciation can provide property investors with significant tax breaks, many fail to take full advantage of the notable savings available to them.
The majority of properties that generate income, regardless of their age, qualify for some level of depreciation. However, property depreciation is a tax deduction that is missed quite often because it is a non-cash deduction (investors don’t need to spend money to claim it).
Property investors can claim two types of depreciation: division 43 capital works deduction and division 40 plant and equipment depreciation. Capital works deduction, also known as the building write-off, applies to items that are fixed to a property’s structure, such as doors and windows. It also includes renovations. Plant and equipment deduction relates to what you can claim for items within the property, such as curtains, blinds or carpets.
To claim for depreciation, investors must first create a tax depreciation schedule. Hiring a quantity surveyor to complete this schedule can be of great benefit to an investor. A qualified quantity surveyor can identify a property’s depreciable items and provide a reasonable indication of the amount of depreciation available. They are also associated with industry regulating bodies and can therefore provide investors with news, information and resources through their accreditations.
Maximising a property’s depreciation can help put more money in an investor’s pocket at tax time. Below are five depreciation tips to remember when claiming for deductions:
1. Your property’s age doesn’t matter
Both old and new properties can attract depreciation deductions. And if you haven’t been claiming depreciation in previous years, your past tax returns can also be adjusted or amended to claim tax deductions.
2. Deductions are available for 40 years
The Australian Tax Office (ATO) determines that a building is eligible to claim capital work deductions for a maximum of 40 years, starting from the date its construction was completed. For investors, this means that they can claim up to 40 years of property depreciation on new buildings.
3. You can claim for previous renovations
Any renovations that took place on your property prior to your ownership can be estimated by your quantity surveyor, with any deductions calculated accordingly. This may include new plumbing, waterproofing or electrical wiring.
4. There are two types of property depreciation
Plant and equipment items are regarded as items that can be easily removed from a property. It includes items that are mechanically or electronically operated that may be fixed to the structure of the building. These items include but are not limited to hot water systems, motors, blinds, ovens, furniture, cooktops and air-conditioning systems.
The capital works deductions are deductions for the structural element of a building including items that are fixed to the structure. It includes materials such as plaster walls, bricks, flooring, mortar, wiring and items such as doors, tiles, windows, toilets and guttering.
5. Use a qualified professional
Quantity surveyors are qualified under tax legislation and are one of the few professionals who specialise in providing depreciation schedules.