The ability to maximise an investor’s tax deduction depends solely on the quantity surveyors’ library of project experience. It is the lengths we go to in order to identify what is between a property’s walls and floors that maximises the tax deduction.
We find that once clients are well-informed with the tax saving potential with a depreciation schedule, the cost of a report quickly becomes insignificant and rather inexpensive!
Taller buildings attract higher depreciation. The truth behind it.
Construction costs of a house is generally lower than a high rise apartment and typical items found in apartments such as lifts and fire services can add a great deal of costs which in turn provides higher tax deductions.
If you are buying a first home and aim to reap the government incentives and benefits, don’t make the mistake of many and think you aren’t entitled. If at any stage you decide to switch the asset from a home to an investment property, as soon as it is put on the market for rent you are entitled to start claiming the deductions.
It is a common misconception that existing properties do not yield any worthwhile depreciation. At Duo Tax, we are actively educating investors on the relevant laws and tax deductions available within investment properties and find that the above is not always the case. The ATO allows you to claim building depreciation (division 43 – capital works) on all residential investment properties built after September 1987. If built before 1987, there still is a chance to claim depreciation if the property was renovated after 1992. The plant & equipment (division 40) is only claimable on older properties if you purchased the property before the 9th of May 2017 and rented it before 1st of July 2017. You can use our calculator to receive a rough estimate on how much you can receive if you are able.
In these properties, unlike a house, if you purchase and own the space to run your own business, the ATO will allow you to claim the depreciation on these as a deduction. If you lease out a space and have completed a fit-out to operate your business, enquire with us to ensure you get the deductions. Speak to your accountant to get proper advice suitable for you.
If you are an overseas investor and looking at acquiring an investment property for the purpose of letting it out to tenants, by law you must lodge an Australian tax return. As such, a depreciation schedule will work favourably for you. Speak to an accountant for clarification on your tax obligations.
Before you demolish and destroy any existing plant and equipment or structural elements of the property such as an old kitchen and appliances, check with us to see if there is any residual value worth writing off as a loss. Most often we find lots of deductions that can be claimed IMMEDIATELY that financial year.
For example an old kitchen with a residual value of $4,500 may still have another 3 years’ worth of depreciation but due to the demolition to reinstate a new kitchen, $4,500 is claimable in full in the current financial year. Speak to your accountant to ensure the circumstance is suitable for you and engage a quantity surveyor to depreciate it.
Whether your property is in the heart of the city of Sydney or as interstate as the Great sandy desert, we can depreciate your property. We service Australia-wide with surveyors in every state. Call us on 1300 185 498 if you feel like it would be a problem for us to complete your report and we will be happy to discuss details before proceeding with your purchase.
Division 40 is the category which covers assets that are easily removable from a building rather than attached or fixed. These include appliances and furnishings. Each item of plant or equipment within your property has an effective life measured in number of years.
The effective life is determined by the tax commissioner under Taxation Ruling 2016/1. It is used to calculate the assets decline in value.
Plant and equipment fall under the Division 40 asset class and are depreciated as per the following methods:
Eligible plant and equipment items with a cost of $300 or less qualify for an immediate full deduction and have been applied accordingly in the calculations.
Low value pool
Includes assets that are purchased in the current financial year worth less than $1,000 (low-cost assets) and also those assets that have been acquired prior to this current financial year and currently worth less than $1,000 (low-value assets) are eligible for the low-value pool; these are depreciated as follows:
- 18.75% in the first year (applicable to low cost assets only)
- 5% in the subsequent years (applicable to all assets less than $1,000)
Effective life depreciation
For any other items that do not fall within the above criteria as either low-value pooled items or immediately written-off, they will be depreciated as per the effective-life schedule.
The Federal Budget announcement for 2017 has proposed changes to claims of depreciation that may affect Australian Residential Property Investors whom are purchasing property after 7:30pm on the 9th of May 2017. At time this article was written, Duo Tax Quantity Surveyors are not aware of this proposed legislation being formalized. However, we do inform all our clients of the possibility of this coming to fruition and how it will affect them.
Division 43 is the category which addresses the building write-off component of your property. The historical construction costs include fees for preliminary items such as design fees, engineering and building approval costs. Where actual costs are not known, a quantity surveyor has estimated this amount by determining the appropriate costs for the building/structural improvement of the asset as at the date it was constructed. The percentage rate at which the building depreciates is dependent upon when construction commenced and the intended use of the building for i.e. commercial, manufacturing or residential purposes. This percentage will either be 2.5% or 4% and has been applied accordingly with respect to the information provided to us.
In some cases, the Division 43 component will not be applicable to your property if it was constructed prior to 15th September 1987 or the structural improvements made on your property occurred prior to 27th of February 1992. It is worth mentioning that the only method of depreciation for any capital works is via the prime cost method.
In cases where the property is used for other purposes such as commercial or manufacturing, the cut-off date for claims of depreciation on the construction cost (Division 43) differs that the asset owner may also claim 2.5% between 20th July 1982 through to 21st August 1984.