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.
The ATO allows you to claim building depreciation on all residential investment properties built after September 1987. And if it is built prior to this date, we urge you to get an inspection as we typically find a lot of fixtures and fittings that fall under the plant and equipment category with plenty of life still left in them. A usual one that is not often picked up is renovations to parts of a home that aren’t that obvious. We offer free consultation and also our guarantee applies here to help those that are not sure if they are getting value out of a report for their property.
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.
We can help. We have qualified construction professionals undertaking inspections all over Sydney, Wollongong, Central Coast, Adelaide, Brisbane, Canberra & Melbourne.
Division 40 refers to the plant and equipment items made up of fixtures and fittings, usually known to be easily removable assets. Each item has an effective life that is measured in years which is set out by the ATO. This can be found within the document ‘Taxation Ruling TR 2019/5 – Income tax: effective life of depreciation assets’.
With Division 40 items, you can depreciate them using either the diminishing value or the prime cost method. Although the end value is the same, many individuals select the diminishing value method for depreciation as your items depreciate at a more rapid rate within the first few years.
For example, a dishwasher has an effective life of 10 years. It depreciates at a rate of 20% of its current value per annum until it reaches the value of less than $1,000. When the value is below $1,000 the depreciation rate increases to 37.5% (as per low value pooling).
Division 43 (Capital works) refers to the depreciation of the structure of the building, usually objects that are irremovable. Capital Works may also be known as Building Write-Off or Capital Works Allowance. Residential properties built after the 15th September 1987 are eligible to claim capital works deductions over a 40-year period which will be depreciated as a straight line at 2.5% per annum. When construction costs are unknown, a qualified specialist such as a Quantity Surveyor will be responsible for estimating the building.
Examples of capital works are:
Despite capital works deductions for residential properties, you are also entitled to claim depreciation on other buildings that are utilised for other purposes. Such examples are buildings used as an office, warehouse or accommodational purposes. The deduction rates applicable varies between buildings and can be found via the ATO:
Additionally, preliminary expenses such as surveying and engineering feeds are also factored in a capital works schedule.
At Duo Tax Quantity Surveyors, we recognise the importance of correctly differentiating the items into its rightful category to ensure you are entitled to the maximum tax deductions.
Division 40 refers to fixtures and fittings in a property that are easily removable assets such as lights, carpet, blinds, etc. While, Division 43 refers to the structure of the building that are irremovable such as walls, tiling, roofting, driveways, etc. So, the depreciation on a property includes division 40: removable assets known as plant & equipment, and division 43: irremovable assets known as the capital works.