Did you know that property depreciation is the second biggest tax deduction for investors, after interest?
Despite this fact, 80 per cent of property investors are failing to take advantage of property depreciation and are therefore missing out on thousands of dollars in their pockets.
Property investors often assume they’re ineligible or that it’s not worthwhile to claim depreciation because they believe their property is too old or they haven’t owned the property for long enough. The reality is that it’s worthwhile making a claim on any property.
Requesting a tax depreciation schedule outlining what claims are available for a property owner can be the difference between turning a negative cash flow investment into a positively geared asset.
During the 2017/2018 financial year, BMT found residential property investors an average first year deduction of almost $9,000. The amount is significant, so for an investor wondering what property depreciation is and how to make a claim, we’ll explain.
Depreciation is a non-cash deduction The Australian Taxation Office (ATO) allows the owner of an investment property to claim due to the wear and tear of a building’s structure and its fixtures over time. It is described as a non-cash deduction because the investor does not need to spend any money to be able to claim it.
Property depreciation can be claimed in two ways; via capital works deductions for the decline in the building structure, and for the depreciation of plant and equipment items. Though the ATO restricts capital allowance depreciation claims based on the construction date of the property, property owners of all property types will receive significant deductions for claims on the fixtures and fittings contained within the property.
Legislation states that for any residential property in which construction commenced prior to the 15th of September 1987, the owner will not be able to claim capital works deductions. For commercial buildings, this date is the 20th of July 1982. There are no date restrictions for a claim for the depreciation of eligible plant and equipment items contained within the property. The amount of depreciation available as a claim for these items is dependent on the condition and quality of each item and is measured based on their individual effective lives as set by the ATO.
For the owners of investment properties who have not previously made a depreciation claim, previous tax returns can usually be adjusted to recoup lost claims.
It’s recommended for all property investors to contact a specialist Quantity Surveyor, such as BMT Tax Depreciation, to arrange a tax depreciation schedule. Quantity Surveyors are one of the few professions qualified by the ATO to have the skills necessary to estimate construction costs for depreciation purposes. BMT Tax Depreciation has been completing tax depreciation schedules for over twenty-two years, and aim to ensure investors are maximising their returns from an investment property.
For a free over the phone assessment of the available deductions on a property, contact the expert team at BMT on 1300 728 726 today or visit the residential property depreciation page on the BMT website for more information.
Article provided by BMT Tax Depreciation for Chan & Naylor
Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation.
Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia-wide service.
Chan & Naylor is Australia’s leading property, business, tax-accounting & wealth advisory group with offices nationwide.