What is Depreciation?

Under income tax law you are allowed to claim deductions for expenses incurred in earning rental income. The cost associated with the acquisition of capital assets (the house, or associated plant), may be written off over a period of time as tax deductions and this is essentially known as depreciation.

It is a common misunderstanding that an accountant can prepare a 'depreciation schedule'.  The ATO specifically states that 'Accountants, Solicitors, Real Estate Agents and Valuers are NOT recognised to estimate construction costs for depreciation purposes (TR 97/25)

To ensure you are claiming all the associated expenses related to depreciation of your rental property we highly recommend that you obtain a Tax Depreciation Schedule. It can be the difference in thousands of dollars of deductions per annum.

What is a Tax Depreciation Schedule?

A Tax Depreciation Schedule is a professionally produced document highlighting items of plant, equipment and capital costs that may be depreciated (I.e. the construction of the house, fittings and fixtures, fencing etc). It incorporates the value of each depreciable item, including delivery costs, installation costs and the cost associated with bringing the plant into full operation.

For more information on tax depreciation schedules, please visit;  BMT & Assoc Quantity Surveyors www.bmtqs.com.au

Five depreciation points every property investor should know

Properties which generate income for their owners are eligible for significant taxation benefits.

Despite this fact, according to the Chief Executive Officer of BMT Tax Depreciation Bradley Beer, 80% of property investors are failing to maximise deductions from property depreciation and are therefore missing out on thousands of dollars in their pockets.

“Property investors often assume they are ineligible or that it is not worthwhile to claim depreciation because they believe their property is too old or they have not owned the property long enough. The reality is, it is worthwhile making a claim on any property,” said Bradley.

“Requesting a tax depreciation schedule which outlines what claims are available for a property owner can make a significant difference. For many investors, depreciation can be the difference between a property which has a negative cash flow and turning the property into a positively geared asset. On average, most investors can claim between $5,000 and $10,000 in deductions in the first full year for any residential investment property,” said Bradley.

This is no small amount, so for any investors wondering what property depreciation is, why to claim it, and how to go about making a claim, the following points will answer some of the most common questions asked by property investors.

1.   What is depreciation?

Depreciation is a non-cash deduction the Australian Taxation Office (ATO) allows the owner or owners of an investment property to claim a deduction due to the wear and tear of a building structure (capital works deduction) and its fixtures (plant and equipment depreciation) over time. Depreciation is described as a non cash deduction, meaning the investor does not need to spend any money to be able to claim it.

2.   No property is too old

An investment property does not need to be new to be able to claim depreciation. Though ATO legislation states that owners cannot claim capital works deductions for any residential property in which construction commenced prior to the 15th of September 1987, there are no date restrictions for a claim for the depreciation of plant and equipment assets contained within the property. On average, 15% of the total construction cost of a residential property is made up of plant and equipment, so it is always worth making an enquiry.

If a property owner has not been claiming depreciation or maximising their deductions, the previous two years tax returns can also be adjusted and amended.

3.   Deductions are available for forty years

The ATO has determined that any building eligible to claim the building write-off allowance has a maximum effective life of forty years. Therefore, investors can generally claim up to forty years depreciation on a brand new building, whereas the balance of the forty year period from the construction date is claimable on an older property.

4.   Claim depreciation for renovations
When renovation work has been completed to a property or is in the planning stages, it is essential to contact a specialist Quantity Surveyor and request a site inspection of the property. Additional deductions may be available for any capital improvements done to a property.

Often when renovations have been completed by a previous owner of the property, the additions may not be obvious. A site inspection of the property will allow a Quantity Surveyor to discover any work that has been completed, including non visible assets like plumbing, water proofing and electrical wiring. The Quantity Surveyor will then estimate the deductions available from any assets or structural additions that have been made within the qualifying dates and calculate the depreciation accordingly.

If an owner is planning on doing any renovation work to their property, an inspection should be performed both before and after the renovation work is complete. The owner may be entitled to claim additional deductions for any remaining depreciable value of assets or structures removed from the property and written off in the year the items are removed.

5.   Use a qualified professional

Quantity Surveyors are qualified under the tax ruling 97/25 to estimate construction costs for depreciation purposes and are one of a few select professionals who specialise in providing depreciation schedules. They are affiliated with industry regulating bodies and gain access to the latest information and resources through their accreditations. BMT Tax Depreciation are accredited members of the Australian Institute of Quantity Surveyors (AIQS), The Royal Institute of Chartered Surveyors (RICS) and The Auctioneers & Valuers Association of Australia (AVAA).

Property owners who would like a free over the phone assessment of the available deductions they can claim should contact BMT Tax Depreciation on 1300 728 726.

Article provided by BMT Tax Depreciation.

Bradley Beer (B. Con. Mgt, AAIQS, MRICS) is the Chief Executive Officer of BMT Tax Depreciation. 
Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia-wide service.

 


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