Every property has something to depreciate!
We talk to Property Investors daily, and a common misconception we keep hearing is that unless the property is “brand new” there is nothing much which can be depreciated.
This isn’t strictly true however, so let’s put some misconceptions to bed.
If you have owned the property prior to 9th May 2017, the Australian Taxation Office lets us look at 3 areas of the property for depreciation.
- The Building – Must have been built after Sept 1987 to qualify for this allowance.
- Structural Improvements – To qualify, the improvement needs to have been completed after Feb 1992.
- Plant and Equipment – Cook tops, carpets, curtains, hot water etc. either brand new or 30 years old, can be put in your schedule.
What we are talking about here are your very old properties – anything from 30 to 100 years old.
So, what is there to depreciate in your older property?
When we visit these properties, we are looking for any Structural Improvements that may have been completed post-Feb 1992.
Has your propety got any of these?
- Kitchen renovation
- Bathroom renovation
- Floors polished
- Electrical work
- New Roof
- New light fittings
- Clothes Line
- TV Aerial
These are just a few of the improvements we are looking for – there are many more.
If we can establish that the renovation/ improvement was completed post-1992, we can value what the renovation would have cost and have that included in your schedule.
You may think, “Well that is fine, but the renovation was completed prior to my purchasing the property and I have no idea what it might have cost.”
Under current ATO legislation, Quantity Surveyors are qualified to estimate a construction cost. This allows us to do two very important things for you
- Establish how old the renovation is
- Estimate the cost of the renovation
From our experience assessing thousands of investment properties, it is extremely rare for us to be unable to identify any improvements that have been completed post 1992. By us finding these renovations it gives you more value in your tax depreciation schedule. This in turn helps with your investment properties return.
Plant and Equipment is another area we are looking at for depreciation in these older property types. All investments have them; carpets, window treatments, hot water services, cook tops, smoke detectors and many more, are included in this area.
Irrespective of their age, these Plant and Equipment items can go in your report to increase your claim.
Another further misconception regarding plant and equipment is thinking, “What value do these items have if they are not brand new?” When we are looking at these types of items we are trying to establish 3 things;
- What was the value of the item new?
- What condition is it in?
- How much life does the item have left?
So, the item may be older, but if is in good condition and is expected to have some years ahead of it, we are likely to give a healthy replacement valuation.
Your 10-year-old stove could be worth $1,000 or more!
Another benefit you can receive after your property has been assessed, is when a plant and equipment item breaks down or gets replaced.
Let’s look at the common hot water service as an example.
Let’s say it has a value of $2,000 and breaks down after 2 years.
|Hot Water Service||Value||Claim|
|New Hot Water – Year 3||$2,000||$400|
Did you notice that when the hot water service breaks down in the 3rd year, the remaining value of $1,280 can be claimed as an immediate deduction? That allowance is categorised as a ‘scrapping adjustment’.
A scrapping adjustment can also come into consideration when an investment property gets demolished. Any of the items in the property that are attracting depreciation, either Structural or Plant and Equipment, can be scrapped if the investment property is demolished.
Too often we see investors renovating properties before they have been assessed for a Tax Depreciation Schedule.
Carpets pulled up and floors polished, curtains replaced and kitchen and bathroom totally renovated – all without the investor able to claim anything from them.
You could be throwing money away!
If these items were used to produce income, they could be scrapped, like when the hot water service in our example broke down.
We know our Quantity Surveying service will save you money. We are so sure in fact, that if we can’t get you savings, our service is free.
So, before you get out the hammer and paint brush, give us a call at Real Property Matters to chat about your plans, and to find out how we can help you save money on your investment!