Investment Property Tax Depreciation

Are you maximising your tax deductions available through your investment property?

With 30 June fast approaching, it comes that time of year again where we are all starting to tidy up our tax affairs and of course hoping to reduce our tax payable or even increase our tax refund! If you own an investment property this will most likely be your largest tax deduction – if done correctly.

There are many misconceptions about tax depreciation so let’s run through some frequently asked questions as they most likely will relate to you coming up to tax time.

What is tax depreciation?

The Australian Taxation Office (ATO) allows investment property owners to claim a tax deduction on the fair wear and tear on an investment property and it’s fittings. Tax depreciation is essentially a non-cash deduction. You don’t necessarily have to directly incur the expense to be able to claim the deduction, you can inherit deductions upon acquisition of the property (different rules apply for residential properties purchased post 9 May 2017, contact us for more information). Tax depreciation is split into two categories; Division 43 Capital Works Allowances (the building itself) and Division 40 Plant and Equipment (eg. carpets, blinds, A/C, ceiling fans etc.)

Is my property too old to depreciate?

Depreciation tax deductions are available to residential property Investors whose investment property was built after 15 September 1987, commercial properties when built after 20 July 1982 and any refurbishments/renovations/improvements from 27 February 1992. You do not have to know when these works were done – leave this up to your tax depreciation provider. Depreciation on plant and equipment is also available on all new buildings and all existing properties when purchased prior to 10 May 2017. In summary, 99.9% of investment properties will be entitled to some form of depreciation deduction.

I have held my property for years, so there’s no point claiming depreciation now?

If you are thinking this please remember that the structure of your investment property has an effective life of 40 years! If you have owned your investment property which was built post September 1987 then it is very likely you are missing out on thousands of dollars’ worth of possible tax deductions. Another tip which could save you thousands is that your Accountant can help you claim tax depreciation retrospectively, amending up to the past two financial year tax returns making the most of your depreciation deductions which you may have lost through not claiming. Completely legitimate and the ATO actually encourage you to do this.

But won’t my accountant look after my tax depreciation?

Quantity Surveyors are recognised by the Australian Taxation Office (ATO) as the most suitably qualified profession to estimate the depreciable expenditure spent on the property prior to your purchase, as well as the value of the fittings and equipment within the property. In accordance with ATO Tax Ruling 97/25, if your residential investment property, for example, was constructed after September 1987 and/or construction costs are unknown, you must engage a registered and qualified Quantity Surveyor to produce a depreciation schedule. Unfortunately, your Accountant can’t do this for you.

At the very least it is worth contacting your tax depreciation specialists to have a discussion regarding your investment property scenario.

This article was contributed by Zac Gleeson – In house Quantity Surveying Contractor for Archers the Compliance Professionals.