Did you know every residential property investor should have a tax depreciation schedule to substantiate and claim maximum deductions?
The concept of tax depreciation for property investors can be complex, so we sat down with Tuan Duong, Principal at Duo Tax Quantity Surveyors to answer some of the frequently asked questions.
Learn about tax depreciation available for your investment property and start claiming.
Q: What is Property Tax Depreciation?
A: Depreciation is the loss in value of assets over a period of time. With property, as buildings get older, their physical structure and all assets internally also decreases in value because of wear and tear. This is known as property depreciation.
When it comes to your investment property, your assets are classified as either Plant and Equipment or Capital Works.
The wear and tear of either plant and equipment or capital works can be claimed as a property tax depreciation. The depreciation figures that you as an investor can claim as tax deductions each financial enabling you to increase your tax refund.
Q: How do you calculate your depreciation?
A: To calculate your depreciation deduction, we apply general depreciation rules unless your asset is eligible for the instant asset-write off or simplified depreciation rules for small businesses.
The ATO prescribes two methods – prime cost method or diminishing value method. Both can be used to claim on your property depreciation.
Q: What is Capital Works (Division 43)?
A: Also referred to by the Australian Tax Office as Division 43, it is the items that make up the building and those that are fixed to the building.
Some of the items that you can depreciate as part of a residential investment property include:
Built-in wardrobes
Toilets and vanities
Basins and sink
Concrete slab
Retaining wall and fences
Timber framing
Q: Does my building qualify for (Division 43) capital works tax deductions?
A: Firstly you will need to ask yourself the following questions:
When was your building built?
What type of building do you own or lease?
Using these two key pieces of information, we can deduce approximately how much your brand new or second-hand property can claim on construction costs. Duo Tax have developed an easy guide to refer to check whether your property qualifies for Capital Works:
Q: In what scenarios are you eligible to claim property depreciation?
A: The eligibility criteria is as follows:
Buildings that still qualify for building depreciation (see division 43)
Second-hand properties that have had substantial renovations
Second-hand properties that have had minor renovations
Investors that purchase property in Managed Funds
Corporate entities that buy properties (e.g. Pty Ltd Company)
Second-hand properties owners who purchase new plant and equipment
Owners who switch from Principal Place of Residence (PPOR) to rental properties prior to 1st July 2017
You own a property that is not residential (commercial, manufacturing or motels)
Q: When should you look to obtain a Depreciation Schedule?
A: We recommend obtaining arranging a Depreciation Schedule pre-settlement.
Q: Do I need a new Tax Depreciation Schedule every year?
A: Fortunately not, our tax depreciation schedules will last the full 40 years of depreciation (where applicable). So, you only need to purchase one for each investment property you own.
Looking to get your tax depreciation report?
Please contact Duo Tax to get a free quote, mentioning Meridian Australia in the enquiry box.
Tuan Duong - Principal at Duo Tax Quantity Surveyors
Disclaimer: When considering purchasing a property, it is always prudent to seek the advice of appropriately qualified professionals to determine which strategies are most appropriate for your circumstance.
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