Property Depreciation: All Your Questions Answered
With tax time looming just around the corner, it is important that you ask all the relevant questions in order to ensure you are getting the most out of your investment property. In today’s article, we have a look at 10 commonly asked questions about property depreciation, so strap yourself in and read on to find out more!
- What Is Property Depreciation?
As an asset ages, items within it wear out and lose their value. The Australian Taxation Office (ATO) permits for property investors to claim a tax deduction relating to the building and its fixtures. Property depreciation can be claimed by anyone who owns a brand new income-generating property, thus reducing your taxable income for the year. Investors can simply utilise an investment property depreciation calendar which will be able to calculate the estimated tax deduction that you may be eligible for.
- What Are Common Deductions I’m Entitled To?
Deductions are often split into two categories – capital works deduction and plant and equipment depreciation. Capital works is a blanket term for expenses such as a building or extension – for example, altering a building, knocking a wall down or building a pergola. Plant and equipment depreciation refers to the deductions claimed for the wear and tear of fixtures and fittings such as air conditioning units, furniture, water heaters and so on.
- What is a Depreciation Schedule?
A tax depreciation schedule is a report which will outline any depreciation allowances that an investor is entitled to. Your report will contain information such as the breakdown of all building allowance costs, the breakdown of all plant and equipment costs and the rates at which you can claim your returns.
- Do I Really Need a Depreciation Schedule?
For anyone who is looking to maximise their investment, a depreciation schedule as an absolute must. Having one will ensure that you do not miss out on any potential tax returns which would otherwise go to the taxman. Research has shown that up to 75% of property investors miss out on the depreciation deductions they’re entitled to. Considering the fact that deductions of up to $10,000 can be made each year, the numbers quickly add up as the years go on.
- When Should I Create My Depreciation Schedule?
Ideally, your depreciation schedule should be created as soon as you settle on an investment property. Doing it as soon as possible will enable you to provide the most accurate values to prevent any disruptions down the line.
- Do I Need To Update My Property Depreciation Schedule?
If you have made any upgrades or renovations to your property over the last financial year, it is advised that you liaise with your quantity surveyor who will be able to let you know if your schedule needs to be updated or not. Do keep note that repairs may not be the same as capital works improvement and can be claimed in full in the financial year they are completed. Capital works improvements are applicable when you improve the condition of your property beyond that of when it was initially purchased.
- How Long Does a Depreciation Schedule Last?
Based on ATO regulations, a depreciation schedule has a shelf life of 40 years from the date construction was completed.
- Can My Accountant Handle Depreciation Deductions?
Unfortunately, the simple answer is no. Only a licensed quantity surveyor is able to assist you in depreciation deductions. Only once your surveyor has prepared your depreciation schedule will you be able to hand it over to your accountant to input deductions into your annual tax return claim.
- What if I Haven’t Been Claiming Depreciations?
Fret not, because your quantity surveyor will be able to backdate your tax depreciation schedule to the initial date of settlement. Don’t forget that once this is done, you should also consult your accountant who will be able to make amendments to your previous tax return claims.
- Can I Use The Estimate Provided By The Developer?
Short answer — no. A sample estimate that is provided by the developer is often just used as a marketing tool to show investors what they might expect to claim should they choose to purchase a property. Most of the time, the estimate isn’t actually specific to your property and may not contain all depreciable items or claims that you will be able to make. Be sure to not shortchange yourself by consulting a quantity surveyor who will be able to assist you in maximising your return on investment.
And there you have it — 10 of the most asked questions with regard to property depreciation. We hope that this article has given you some useful insight into property depreciation and the claims you can make in order to fully maximise the return on your investment property.