Does Depreciation Apply to All Properties?
Property depreciation claims for investment properties fall into one of four categories:
- - Built prior to the 18th of July 1985
- - Built between the 18th of July 1985 and the 26th of February 1992
- - Built before the 26th of February 1992, but renovated more recently
- - Built after the 26th of February 1992, or an older home that’s been extensively renovated
For these older properties where the building of the property began before this date, only plant and equipment may be depreciated.Built from 18 Jul 1985 to 26 Feb 1992
For properties where the construction took place during this period, investors are able to claim both Building Allowance and Plant and Equipment.
For these houses, the rates of deduction for each claimable year range from 2.5 to 4 per cent.Older, Renovated Buildings
If your property was built after 26 February 1985 but has since been renovated, it will fall into this category.
To claim depreciation, you will need to provide the cost of renovation to the ATO. If the renovations were undertaken by a prior owner, you can still claim depreciation on your property, but you will need a qualified quantity surveyor to provide an estimate of the costs of renovation.Built after 26 Feb 1992 or Extensively Renovated
Investors can claim depreciation on the decrease in value of a depreciating item inside the property.
How Can I Obtain a Tax Depreciation Schedule?
You may need to work with qualified consultants to help you obtain a tax depreciation schedule, depending on when the building was constructed.
For properties built after the 1985 cut-off date, you will need to hire a licensed quantity surveyor.
You will need to consult with a specialist quantity surveyor, rather than relying on a tax depreciation schedule from an accountant which may not hold up to an audit by the ATO.
Property depreciation is a highly specialised field that demands a level of professional expertise.
Quantity surveyors are the professionals who are sufficiently equipped to estimate the values and costs associated with a building, when such prices are unknown. This is detailed in the ATO's Tax Ruling 97/25.
This means that other experts, such as a real estate agent, valuer, accountant or solicitor, are not permitted to estimate the building costs.
What to Look for in a Quantity Surveyor
Quantity surveyors are experts in measuring the expenses of the construction process. Only a quantity surveyor who is completely certified has the necessary education, experience, and training to produce accurate figures for a property tax depreciation plan.
Investors should verify the credentials of a quantity surveyor, to make sure they are members of an industry body such as the Australian Institute of Quantity Surveyors (AIQS). AIQS membership shows that a quantity surveyor has successfully completed the recognised qualification and is competent for a specialised, high-stakes task.
With thousands of dollars in the balance, depreciation must be calculated accurately by a consultant who understands the ins and outs of the profession.
The expert aid of a quantity surveyor can provide the difference between educated guesses or assumptions and true calculations. They can also help maximise a client's financial position with respect to their real estate assets.
Conducting an On-Site Property Inspection
On-site rental property inspections are mandated by the AIQS Code of Practice. This level of accuracy is essential to meeting the ATO criteria for calculating a depreciation schedule.
For a quantity surveyor to evaluate the rental property, they frequently communicate directly with the tenant or rental property management. Ideally, this takes place as soon as possible following a settlement, right before the renter moves in. This is done to minimise the inconvenience to the tenants.
A site inspection means that all depreciable objects are documented and photographed by a licensed quantity surveyor. In the case of an audit, the documentation can subsequently be used to support your case for depreciation.
It also helps to ensure that no possible depreciation deductions are overlooked during the process.
What Is Involved in Creating a Tax Depreciation Schedule?
The price of creating a tax depreciation plan can vary widely. A range of variables can affect how much time and money will be needed, such as the kind of residential rental property it is, where it is located, and how big the rental property is.
Assuming the quantity surveyor can visit your investment property without delay, it usually takes 3 business days to complete a depreciation plan.
Often, it pays to choose a more extensive depreciation package that offers more value for a rental property investor, especially if you own a sizable portfolio of rental properties.
Keep in mind that, as it is part of your costs of owning residential rental properties, the cost of obtaining a tax depreciation schedule is completely tax-deductible.
Filing Taxes Again with a Depreciation Schedule
It’s not too late to obtain and use a tax depreciation schedule.
For rental property investors who have only learned about the benefits of a tax depreciation schedule now, it may not be too late. It's possible to file your taxes again. Your accountant is able to make changes to tax returns from up to two years ago.
However, there are certain exceptions to this rule. So if you are in need of further information about how to back-date a tax depreciation schedule, speak with your tax advisor about what your options are.
Once you have your tax depreciation schedule, you could be reaping the dividends in the form of depreciation deductions for decades to come.