As the owner of a residential investment property, claiming maximum depreciation deductions can make a big difference to your cash flow.
Property depreciation is generally the second biggest tax deduction after interest, though it’s often missed by investors. This is because it’s a non-cash deduction, meaning you don’t have to spend money to be eligible to claim it.
The Australian Taxation Office (ATO) allows owners of income-producing properties to claim depreciation deductions for the natural wear and tear that occurs to a building and its assets over time. These deductions can be claimed under two categories – capital works deductions and plant and equipment depreciation.
Capital works deductions refer to the building’s structure and items considered to be permanently fixed to the property such as kitchen cupboards, doors and sinks. Residential homes in which construction commenced after 15th September 1987 are eligible to claim capital works deductions at a rate of 2.5 per cent over forty years.
Plant and equipment assets are items which are easily removable from the property such as carpet, hot water systems and blinds. These assets have a limited effective life as set out by the ATO and can generally be depreciated over time. Investors can claim depreciation deductions for more than 6,000 different ATO recognised assets. It’s important to be aware of restrictions to claiming depreciation on previously used plant and equipment found in second-hand residential properties as legislation changed in May 2017.
Any income-producing property may be eligible for thousands of dollars in depreciation deductions. A tax depreciation schedule is the best way to ensure you get the biggest tax refund possible.
A BMT Tax Depreciation Schedule covers all deductions available over the lifetime of a property to ensure you maximise your cash flow and is 100 per cent tax deductible. During the 2017/2018 financial year, we found residential property investors an average first year deduction of $8,212.
For more information, Request a Quote or speak with one of the expert team at BMT Tax Depreciation on 1300 728 726.
This article, “Maximise your tax return with depreciation deductions”, was 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.