Many property investors could be claiming up to $6,000 more in depreciation per investment property. On average, the Australian Taxation Office (ATO) depreciation claim for an investment property is around $3,000 per dwelling. However, the average schedule lists $9,200 worth of depreciable items. So, investors are missing out.
What Types of Items are Depreciable?
There are many assets in a property that an owner does not know are depreciable. Sometimes even an accountant misses these assets. Plus, many investors forget about depreciation because its not a cash deduction. For example, an investor does not need to spend any money to be able to claim depreciation.
Items that are depreciable include plant and equipment and building allowances. Plant and equipment refers to items within the building, while a building allowance covers the costs of any construction.
The tax deduction you can claim is purchase price based and has a diminishing value of depreciation. Therefore, assets that have a value of $300 or less can be written-off in the first year. Nevertheless, assets with a value of $1000 or less belong to a low-value pool for depreciation at 18.75 in the first year.
Lets look at an example of missed items and rarely claimed assets.
Depreciation applies to all homes. Though, a property built after 1985 can claim both plant and equipment and building allowance depreciation. Properties built before 1985 can only claim plant and equipment. Commercial and industrial properties are subject to various cut-off dates depending on structure type, and the location of the dwelling.
Understanding Property Depreciation
Can My Accountant Prepare My Depreciation Report?
An accountant is not authorised to estimate construction costs if your property has a build date after 1985. Under Tax Ruling 97/25 a Quantity Surveyor is the only person who can accurately estimate costs. Real estate agents, property managers and valuers are also not able to give estimates. To avoid any issue with the ATO, have a depreciation schedule drawn up by a Quality Surveyor before leasing. You can then send your accountant a copy of this depreciation schedule. This approach means that you will not inconvenience a tenant, and your accountant has your depreciation schedule on-hand when needed.
Does a Quality Surveyor Need to Visit My Property?
Yes, a Quality Surveyor needs to visit your property as this fulfils their code of practice and ATO requirements. When the Quality Surveyor visits your property, they will note and photograph all items that will depreciate. Using this method also ensures that you do not miss any deductions.
Write down if you have replaced items in your property or renovated. Then let the surveyor know how much you have spent. If you give the surveyor receipts, then you will be able to claim the full amount. If you do not have receipts, then the surveyor will estimate the cost of renovations.
What are the Costs of a Depreciation Schedule?
Costs of depreciation schedules vary depending on the Quality Surveyor you use. Other factors that may alter the cost of the schedule include the property size and its type. A Quality Surveyor report is 100 percent tax-deductible, and most surveyors will give you a guarantee.
Written by eChoice
Since 1998, eChoice has helped more than 50,000 Australians secure a home loan through its network of over 25 lenders and hundreds of loans. Best of all our service is cost and obligation free!