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
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.
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
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.
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).