Investors are entitled to claim significant taxation benefits from any property they own that generates an income.
Despite this fact 80 per cent of property investors are failing to take advantage of property depreciation and are missing out on thousands of dollars in their pockets.
There are multiple reasons why investors don’t claim depreciation. Often they believe their property is too old and therefore they think that they are ineligible, or they believe they have not owned the property for long enough to make their claim worthwhile.
Worse still, some investors may not even be aware of property depreciation and the deductions claiming it will entitle them to.
The additional funds made available from depreciation can make a big difference to an investor’s cash flow. On average, most property investors can claim between $5,000 and $10,000 in deductions in the first year for any residential property investment.
Even a basic understanding of property depreciation can help Property Managers, Accountants and Financial Advisors to guide their investor clients towards making an informed decision. Encouraging an investment property owner to obtain a depreciation schedule will help them to maximise their cash flow and even make owning their next investment property more achievable.
So, let’s look at some of the reasons why all investment property owners should claim depreciation.
- Deductions are available for the building structure and plant and equipment assets
Both new and old properties will attract some depreciation deductions. This is because deductions are not just available from the buildings structure via a capital works deduction. Investment property owners are also entitled to claim substantial depreciation deductions for all plant and equipment assets contained in the property.
Though property owners can only claim capital works deductions for residential buildings in which construction commenced after 18 July 1985, depreciation of plant and equipment is not limited by a property’s age. It is also the condition and quality of each item which contributes to the depreciable amount.
In a standard residential property, more than 15 per cent of the total construction cost is made up of plant and equipment assets. This can represent a significant proportion of the total depreciation available and thousands of dollars in deductions for the owner.
The ATO also allow owners to claim a capital works deduction for any recent renovations that have been made to an investment property, even if the renovations were completed by a previous owner.
- Deductions are available for forty years
The ATO has determined that the owner of any building eligible to claim the capital works deduction can do so for forty years. While investors of newer buildings can generally claim deductions for the full forty years, owners of older properties can still claim the remaining balance left of the forty year period from the construction completion date.
A specialist Quantity Surveyor will always outline the full deductions available over this period within a tax depreciation schedule for both the owner and their Accountant.
- The cost to organise a depreciation schedule is 100 per cent tax deductible
In order to claim depreciation, investors are encouraged to consult with a Quantity Surveying company who specialise in tax depreciation. They will prepare a tax depreciation schedule for both the owner and their Accountant to use when completing their annual tax assessment. The fee to organise a schedule is 100 per cent tax deductible. If an investor has not claimed depreciation in the past, the last two years tax returns can also be adjusted.
Enlist the assistance of a depreciation expert
Ensuring any property investor’s depreciation claim is maximised requires a combination of construction costing skills and thorough knowledge of current tax depreciation legislation. For this reason, it is recommended to contact a Quantity Surveyor who specialises in tax depreciation for advice and assistance.
Bradley joined BMT in 1998 and, as such, he has substantial knowledge about property investment supported by expertise in property depreciation and the construction industry.
Bradley is a regular keynote speaker and presenter covering depreciation services on television, radio, at conferences and exhibitions Australia-wide.