How Does a Tax Depreciation Schedule Work?

Property investors are entitled to several taxation benefits; however, many fail to take full advantage of the 

depreciation deductions available to them.

While most investors are aware of claims for expenses such as interest on their loans, council rates, property management fees, and repairs and maintenance costs, depreciation is a hidden factor often overlooked.

To help you better understand property depreciation, here are the answers to some of the most frequently asked questions.

What is property depreciation?

As a building gets older, its structure and the assets contained within it wear out – they depreciate. The Australian Taxation Office (ATO) allows owners of income-producing properties to claim this depreciation as a tax deduction.

What can you claim?

Depreciation deductions are split into two distinct categories:

• Division 43 capital works allowance
• Division 40 plant and equipment depreciation

The capital works allowance relates to claims for the wear and tear that occurs to the structure of the property and any fixed items. Capital works include items such as the roof, walls, doors, kitchen cupboards, bathroom tubs, and toilet bowls.

Generally, any residential building where construction commenced after 15th September 1987 will entitle its owner to capital works deductions. These deductions can be claimed at a rate of 2.5 per cent per year for up to forty years.

Owners of buildings constructed before 1987 should still determine what deductions are available, as these buildings may have undergone some form of renovation that can result in capital works deductions.

Plant and equipment depreciation can be claimed for the easily removable fixtures and fittings found within the property. There are more than 6,000 different depreciable assets recognised by the ATO, including items such as carpet, blinds, air conditioners, hot water systems, smoke alarms, and ceiling fans. Each plant and equipment asset is assigned an individual effective life and depreciation rate.

Under current legislation, owners of second-hand residential properties who exchanged contracts after 7:30 pm on 9th November 2017, are not eligible to claim deductions for previously used plant or equipment assets. Investors who purchase brand-new residential properties, substantially renovated properties, or commercial real estate, or add new plant and equipment assets to a second-hand residential property, can still claim substantial depreciation deductions. 

How will claiming depreciation help an investor?

As the owner of a residential investment property, claiming depreciation deductions can make a big difference to your cash flow. During the last financial year, a Quantity Surveyor found that a client received an average first-year claim of almost $9,000 on a new investment property. A Depreciation Schedule covers all deductions available over the lifetime of a property to ensure you maximise your cash flow and is 100 per cent tax deductible.

What is involved in completing a tax depreciation schedule?

A Quantity Surveyor starts by collecting the basic information needed to prepare the schedule. This includes simple details such as the name you would like to appear on your depreciation schedule, the property address, purchase information, and the details of your property manager, as well as advising that Canberra Tax Solutions is your tax agent.

Then, a property inspection is conducted. To make this as easy as possible, a Quantity Surveyor can contact your property manager or tenant directly to arrange access to the property. The original construction cost of the property, as well as any renovations, will be estimated and recorded by the property inspector. The property inspector will count, measure, and photograph all depreciable assets, including flooring, light fixtures, tapware, and other items. All the depreciable assets found within your property will be recorded during the inspection and reported back to your local office.  

From there, the depreciation and specialist tax team will review the information gathered and prepare your tax depreciation schedule. A Quantity Surveyor can even forward your schedule directly to Canberra Tax Solutions, saving you time.

Canberra Tax Solutions has partnered with Duo Tax to offer our clients an exclusive discounted rate on professional 

tax depreciation schedules. Click here and select "I need a Tax Depreciation Report" to take advantage of this offer. 

Disclosure: Canberra Tax Solutions does not receive any commissions, referral fees, or financial incentives from Duo Tax. Our arrangement is based solely on the value and service they provide to our clients. 

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