Property Depreciation

Buildings age and degrade as a result of the wear and tear on their structure and components. If you own an investment property, you are able to deduct this depreciation from your taxes, in accordance with the Australian Taxation Office (ATO).

Depreciation Packages

Depreciation Package
PLUS

$550

plus GST

Quantity Surveyor Full Depreciation Reports
40 Year Depreciation Report
Prime Cost vs Diminishing Value
Low Cost & Value Pooling
Director Sign Off
Photos of Property
Property Research/Analysis
RP Data
Emailed to you or your Accountant
ATO Compliant

On average, clients receive a return of 10 X their fee
We can estimate your tax return over the phone

Depreciation Package
STANDARD

$495

plus GST

Quantity Surveyor Full Depreciation Report
40 Year Depreciation Report
Prime Cost vs Diminishing Value
Low Cost & Value Pooling
Director Sign Off
Property Research/Analysis
Emailed to you or your Accountant
ATO Compliant

On average, clients receive a return of 10 X their fee
We can estimate your tax return over the phone

A Single Tax Depreciation Schedule for Every Filing

A property depreciation plan only needs to be made once. Using this document, your accountant will be able to claim depreciation at the end of each financial year.

As a result, you may expect to receive the benefits of the claim each year when you receive your tax return.

Effectively, the tax depreciation schedule can reduce your taxable income. In this way, it reduces the total amount of tax you are liable to pay each financial year.

When everything is taken into account, it becomes clear how beneficial it is to understand and make full use of the tax laws around property depreciation.

The Importance of Maximising Your Tax Claims

There are a number of tax breaks that property investors are entitled to. Unfortunately, many don’t realise the full extent of what they can claim, so they don’t fully use the depreciation deductions that are available to them.

Depreciation is one that is commonly overlooked by property investors, who instead focus on more well-known tax opportunities for expenses such as interest on loans, property management fees, council rates, and repairs and maintenance charges.

However, by claiming your property depreciation and maximising your tax claims, you can increase the earnings from your investment property.

Assets You Can Claim Depreciation On

Depreciation can be claimed on far more than just the structure of the building. Depreciation deductions for depreciation fall into two categories, according to the type of asset:

Capital works depreciation (Division 43)
Plant and equipment depreciation (Division 40)

Claim Depreciation on Division 43 Assets

What Assets Are Covered by Division 43?

The claims for the deterioration of the property’s structure fall under the capital works deductions. This also includes any fixed components; so the roof, walls, doors, tiles, kitchen cabinets, bathtubs and toilet basins are all considered capital works.

For the majority of modern structures, Division 43 capital calculates depreciation at a steady rate of 2.5%. This approach therefore equitably spreads the depreciation over a period of forty years.

Typically, at least 85 to 90 per cent of the entire claimable amount is made up of Division 43 deductions, as the value of the building dwarfs that of the components within it.

The Key Cut-Off Date of 15 September 1987

In general, the owner of any residential structure is entitled to capital works deductions, if the construction of the building began after the 15th of September, 1987. These depreciation deductions may be made for up to 40 years, at a rate of 2.5% each year.

There are some key exceptions that cannot be deducted under Division 43. One is soft landscaping, such as grasses, bushes and trees are examples of soft landscaping. Another exception is a building that was built before the 15th of September, 1987.

Investors frequently are caught off guard by the latter condition. For older buildings such as Victorian terraces, you cannot discount the original building or any remodelling done prior to that cut-off date.

As an investment property investor, it’s important to find out when a building was constructed or significantly remodelled, before you purchase it. A Division 43 tax deduction cannot be made for anything that occurred outside of the designated time frame.

However, if the building on your investment property was built before 1987, you should still research the tax benefits that may be available to you. Frequently, these structures have undergone renovations that qualify as capital works within the relevant period.

How to Claim Deductions on Division 40 Assets

What Assets Are Covered by Division 40?

Fixtures and fittings located inside the investment property, which are easily detachable rather than fixed structural items, are eligible for plant and equipment depreciation claims.

The ATO recognises more than 6,000 distinct types of depreciable assets, ranging as far from carpets, blinds and smoke alarms to hot water systems, ceiling fans and air conditioners.

A separately calculated effective life and depreciation rate have been allocated to each piece of machinery.

Two Methods to Calculate Depreciation for Division 40

Investors may select between two methods of claiming depreciation under Division 40: the diminishing value and the prime cost methods. Both techniques make use of the entire decline in value of a given asset, but they employ different formulas to do so.

In the diminishing value method, the deduction is calculated as a percentage of the opening balance of the new financial year – which is the closing balance of the prior financial year.

On the other hand, there is the prime cost method to determine investment property depreciation. Here, the depreciation is calculated as a percentage of the cost for each year.

Essentially, it is a straight-line depreciation where the same deduction is claimed each year. The formula would appear as: the cost of the asset divided by the effective life of the asset (in years).

Simple Steps to Obtain a Tax Depreciation Schedule

A tax depreciation schedule begins with gathering the necessary data to create the depreciation schedule. Simple information such as the address of the investment property, information about the purchase, the name to appear on the tax depreciation schedule, and the names of your property manager and accountant should be included in this first step. A property inspection is then carried out. JC Depreciation can arrange access to the investment property by getting in touch with your property management or renter directly, making it a smoother process for all parties involved. The property inspector will assess and note the costs of the building’s initial construction, as well as those of any upgrades that may have taken place over the years. All depreciating assets, such as the flooring, tapware and light fixtures, will be counted, measured and photographed by the property inspector. After the inspection, your investment property depreciation assets will all be listed and reported back. After reviewing the data obtained, your property depreciation team will create the tax depreciation plan.

Property Eligible for Investment Property Depreciation

Not all property investors are eligible to claim tax deductions for commercial property depreciation or residential property depreciation. Investors who are eligible to deduct a sizable amount for depreciation include those who bought a completely new residential rental property, a residential property that has had extensive renovations, a residential property to which they have added new plant and equipment assets, or a commercial real estate property. Those who came into possession of a residential investment property that wasn’t a new build, where the contracts were exchanged after 7:30 pm on the 9th of May, 2017, are not currently allowed to deduct the decline in value of their previously used plant and equipment assets.

Is the Price of a Tax Depreciation Schedule Worth It?

JC Depreciation offers two Depreciation Packages, the Standard package at $495 plus GST or the Plus package at $550 plus GST. As this cost is part of the operation of your investment properties, the tax deductions are available for the purchase price of the property depreciation schedule. Think of this cost as an investment, one that is part of the proper management of your investment properties. It’s critical to keep in mind that a depreciation schedule is an upfront expense with a lifespan of up to 40 years to reduce your taxable income. Once a quantity surveyor has created the property tax depreciation schedule, your accountant can refer to this same document each year, to calculate the property depreciation deductions that will maximise your earnings.

The Significant Benefits of a Depreciation Schedule

Claiming depreciation deductions as the owner of an investment property can significantly improve your cash flow. Owners of a residential investment property can have an average first-year claim of over $9,000. In order to maximise your cash flow, make use of a depreciation package from JC Depreciation, which is entirely tax-deductible. Learn more about JC Depreciation’s services for tax depreciation Sydney, tax depreciation Melbourne and tax depreciation Brisbane, or order your property depreciation report.

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