Depreciation is sadly often missed by investors, but it is a legitimate tax deduction.
The Tax office admits that 52% of investors don’t claim what they are legally entitled to. Don’t let it happen to you!
There is no cash outlay required to legitimately claim a tax deduction, and you can claim depreciation even if you are making a profit after expenses from your investment.
Most properties have a combined depreciation allowance as a tax deduction between $3000 and $25,000. If your tax rate is 46.5%, the ATO will refund you between $1,400 and $12,000 even if the property is cash flow positive.
To find out if you how much depreciation you are allowed to claim, employ a licensed quantity surveyor, and they will create a depreciation schedule. This will map out what you are entitled to claim. Your depreciation schedule will need to be updated for all improvements & renovations to the property.
Why do I need a tax depreciation schedule?
A tax depreciation schedule reduces your tax liability on assessable income.
The tax depreciation schedule allows you to claim back money that would otherwise go to the tax man.
What is a tax depreciation schedule?
A Tax depreciation schedule reduces your tax liability on assessable income, it allows you to claim back money that you otherwise be paid in tax.
A Tax Depreciation Schedule is a report which outlines the depreciation allowances that an investor is entitled to. There are two types of deduction. The capital works deduction and plant and equipment allowances. A capital works deduction applies to the building and any structural improvements. Depending on the date of construction, the rate applied is either 2.5% or 4.0%.
The second deduction is the plant and equipment allowances. Certain items of plant and equipment can be depreciated at an accelerated rate. For example carpet, air conditioning, curtains, and appliances.
How much tax depreciation can I claim?
The amount of depreciation you can claim will depend on the type of property you own and the fixtures, fittings, furniture and plant and equipment.
Owners of apartments & townhouses can claim a portion of the common property areas within their complex.
What happens if I have owned my property for a long period of time?
Tax depreciation schedules can generally be backdated for a period of up to 5 financial years providing you have owned it for that length of time.
Can I use the sample estimate that was given to me by the developer in my tax return?
A sample estimate is generally used as a marketing tool to show what an investor might expect to be able to claim if the property was purchased. Often the sample estimate isn’t specific to your property and may not contain or include all depreciable items that would be found if a full depreciation schedule was completed.. You may end up under or over-estimating the amount of depreciation that you are legally allowed to claim.
How can I Increase Tax Deduction in the first year?
If you are looking to maximise your tax deductions on your new investment properties, and believe a renovation will add capital value and a better rental income. Be aware that any improvements you add will not be tax deductible. However, all fixtures and fittings that are pulled out and thrown away can be written off, as long as they are depreciable and have some value in your depreciation schedule. If your depreciation schedule says these items still have value then:
- · You may have a tax deduction by writing these items off.
- · All the new items go into your depreciation schedule at the value you paid for them, so now you have a higher depreciation this year and coming years.
- · Interest on the amount borrowed to do the improvements is tax deductible.
Remember, you can claim renovation works on your property even if you didn’t do the work yourself. So if the previous owners put a new roof on your property, this would appear in your depreciation schedule.
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2 responses so far ↓
1 Rich // Apr 12, 2008 at 12:37 am
Great Page…I’m adding this blog to my Blog Roll…We should do a joint venture since our pages are focused on the same topic. Let me know if you’re interested! -Rich
2 Theophilus // Jun 27, 2008 at 8:26 pm
I am QS, and i honestly like this page. This could be because of the fact that i am hearing about this for the first time. Could you please put me through this, so that, maybe one day, i could also be an expert in this. Thanks.
Yours in Cost and Value.
Theophilus
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