Investment Properties and Depreciation deductions
We see it countless times where new clients with pre-existing investment properties haven’t claimed the depreciation they are entitled to. Perhaps second only to interest expenses, depreciation can be the next largest expense. Depreciation expense differs to the other form of deductible expenses in that it is a claim calculated around the properties construction cost, rather than your yearly outgoings. So effectively no extra outgoings are required per annum to claim depreciation, so it makes perfect sense to claim it, if the property is eligible.
A common misconception is that only new properties attract depreciation claims. However this is not correct, as both new and old properties will attract some depreciation deductions.
The ATO allows an investment property owner to claim a deduction for depreciation for the building structure and the items inside the property, such as carpets, curtains, kitchen appliances etc
As a general guide:
Building Structure depreciation is available on properties constructed post 1982 (non residential) and 1987 (residential).
Plant and equipment assets are depreciable over their effective and generally depreciate faster than the building structure.
If your property was built prior to the dates above, but renovations have been conducted thereafter (by you or the previous owners) then depreciation is available on certain elements of the renovation. It may include items that are not obvious to you such as re plumbing or wiring.
What if you haven’t been claiming depreciation but you were entitled to it?
If a property owner has not been claiming or maximising tax depreciation deductions, the previous two financial year’s tax returns can be amended.
We recommend engaging the services of a reputable Quantity Surveyor, as they possess the required skills to calculate the cost of items for the purposes of depreciation, and then provide a comprehensive report to you and the accountant for tax purposes.
So don’t let one of the biggest tax deductions get away from you. The one off investment in a quantity surveyors report will pay itself back in year 1 alone.
If you need help getting started, please contact us and we will put you in contact with a Quantity Surveying firm we trust and utilise.