Claiming depreciation can be one of the perks of owning an investment property.
Property depreciation is a legal tax deduction relating to the wear and tear of your investment property. In other words you may be able to claim a tax deduction due to your property getting older with time. The amount you can claim will vary based on the specific type of property purchased and when it was built.
If you buy a property built between the years 1987 and 2000 you may be able to claim around $3,800 in deductions a year. Similarly if you buy a property built between the years 2000 and 2019 you may be able to claim around $5,800 a year. You may be entitled to claim upwards of $12,000 in year one for a brand new property.
These figures represent an estimate rather than a definitive calculation of how much you’ll be able to claim in depreciation. As a general rule approximately 95% of the construction cost of a new property can be claimed.
A quantity surveyor can itemise all the parts of the building and produce a tax depreciation report including two sets of schedules which details how much you can claim as a tax loss each financial year as it can reduce your overall tax payable.
A depreciation schedule is generally broken into two parts. The first part relates to items that make up the structure of the building known as the “Capital Works Allowance” and the second part relates to “Plant & Equipment” such as carpets and electrical appliance which depreciates at a faster rate because they have a shorter life.
Tax Allowance Services will charge a fee of $595 for a typical residential depreciation report which is generally valid for the life of the building (40 years for a new dwelling).
It is recommended you have the report updated if you do any renovations or need to replace any fixtures and fittings. Renovations can be claimed provided the items acquired are brand new.
You can generally “backdate” a depreciation schedule by up to two years. The laws have recently changed and there is a big difference between claiming depreciation on new property compared to second-hand property.
If you acquired a second-hand residential property with a settlement date of 10 May 2017 or later and it contains “previously used” depreciating assets, you will no longer be able to claim depreciation on those assets.
Individual Australian property investors are potentially missing out on thousands of dollars in potential tax deductions each year by not claiming their full tax depreciation entitlements.
Many Australian property investors may not know that a tax depreciation report undertaken by a qualified Quantity Surveyor and Registered Tax Agent can identify hundreds of items in an investment property for which you can claim legitimate depreciation benefits. As we about to enter a new tax year, owners of investment properties in Australia can significantly boost their cash flow by claiming these tax deductions on a large number of various household items through depreciation benefits.
Some of the legal, yet often neglected deductions include: carpets; hot water system; cook tops, blinds and solar systems.
The tax benefits associated with negative gearing can be very significant achieving tax benefits obtained through depreciation up to 65% of the total purchase price of the property. In some cases these tax benefits can total $350,000 based on a purchase price of $550,000.
To qualify for these legitimate tax deductions, an investor must have a fully compliant tax depreciation company undertake an onsite inspection of the property and then compile a depreciation report based on this inspection. Estimates of tax depreciation benefits for an investment property made from an office desk will not be accepted by the ATO.
Depreciation is a complex area of taxation that requires a professional to undertake a depreciation report because of constant changes in rules.
The ATO is now taking a more aggressive approach to tax deductions made by residential investors and has asked a large number to provide more details about their claims relating to property investment.
Property investors should check that the individual undertaking their tax depreciation schedule is a qualified Quantity Surveyor and Registered Tax Agent such as Tax Allowance Services Perthwhich gives protection to consumers that their tax depreciation report complies and is completed in a professional manner.