Understanding Depreciation Schedules
There’s nothing more exciting than buying your first investment property and getting that first slip from your property manager to show your rent coming in. However, rental income is just the start. Around tax time, there are even more ways to help you pay off your investment – and one of those is by getting a property depreciation schedule that you can claim on tax.
What is property depreciation?
Just like you claim wear and tear on a car purchased for income producing purposes, you can also claim the depreciation of your investment property against your taxable income.
There are two types of allowances available: depreciation on plant and equipment (such as blinds, carpets and air conditioners) and depreciation on building allowance, which refers to construction costs of the building itself, such as concrete and brickwork.
So how does a depreciation schedule help me?
A depreciation schedule will help you pay less tax. The amount the depreciation schedule says you can claim effectively reduces your taxable income and the savings can be substantial.
Is my property too old to claim property depreciation?
The most common misconception is that only a new property can be depreciated and this is simply not true. If your residential property was built after July 1985 you’ll be able to claim both building allowance and plant and equipment. If construction on your property commenced prior to this date, you can only claim depreciation on plant and equipment but it will still be worthwhile.
I bought my property three years ago. Can I still make a claim?
Yes you can. Your accountant can amend your previous tax returns up to two years back.
My property is renovated. Can I still claim?
Yes. The Australian Tax Office (ATO) will need to know how much you spent on renovations. If the previous owner completed the renovations you’re still entitled to claim depreciation. Where the cost of renovation is unknown, a quantity surveyor has been identified by the ATO as appropriately qualified to make that estimation.
Shouldn’t my accountant prepare this report?
If your residential property was built after 1985 your accountant isn’t allowed to estimate the construction costs. The ATO has identified quantity surveyors as properly qualified to make the appropriate estimate of the construction costs, where those costs are unknown. Real estate agents, property managers and valuers aren’t allowed to make this estimate.
Should my depreciation provider be a registered tax agent?
From March 1, 2010, all companies that prepare tax depreciation schedules must be registered tax agents. The Australian Institute of Quantity Surveyors (AIQS) is a “recognised tax agent association”, enabling full members of the AIQS who have sufficient experience to gain registration as tax agents.
Will you need to inspect my property?
A site inspection of your property is necessary to satisfy ATO requirements and also ensures that all depreciable items are noted and photographed. This guarantees you won’t miss out on any deductions and the documentation can then be used as evidence in the event of an audit.
The best time to get a quantity surveyor to inspect your property is immediately after settlement and hopefully just before the tenant has moved in. But if that’s just not possible, quantity surveyors can liaise directly with the tenant or property manager in order to cause minimal disruption.
How much will my property depreciation schedule cost?
The cost of preparing a tax depreciation schedule varies according to the type of property you’ve purchased, location, size and numerous other factors. Quantity surveyors fees are 100 per cent tax deductible.