We talk to Property Investors daily and a common misconception is that unless a property is “brand new” there is nothing much which can be depreciated.

Let’s put some misconceptions to bed.

A Real Property Matters Tax Depreciation Schedule will look at three main areas of the investment property when assessing for depreciation deductions.

  1. The Building
  2. Structural Improvements
  3. Plant and Equipment

The Building
The walls and roof must have been built after September 1987 to qualify for this allowance.

Structural Improvements
Any improvements that have been completed to the property in the last 26 years qualify to be included in your depreciation schedule. The date the improvement needs to have been completed is February 1992.

So, what is there to depreciate in your older property?…

  • Has your property had any of these improvements?
  • Kitchen renovation
  • New roof
  • Gutters
  • Patio
  • Electrical upgrades
  • Fencing
  • Air-conditioning
  • Floor tiling
  • Bathroom renovation
  • Paving
  • Painting

These are just a few of the improvements we will look for when assessing your property and there are many more.

 

Renovating

 

If we can establish that the renovation/improvement was completed post-1992, we can value what the renovation cost to complete and include that cost in your depreciation 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, only a Quantity Surveyor is qualified to estimate a construction or improvement cost. This allows us to do two very important things for you. Firstly, establish how old the renovation is, and secondly estimate the cost of the renovation. This cost can then be included in the Tax Depreciation Schedule.

Plant and Equipment
These items, irrelevant of age, qualify for either annual depreciation or the loss can be claimed later as capital loss when you dispose of the property to offset any capital gain. This covers removable assets such as;

  • Kitchen appliances
  • Smoke detectors
  • Security system
  • Window treatments
  • Hot water system
  • Some air conditioning
  • Floor coverings to name a few

A scrapping adjustment is also a consideration when assessing older properties. If an item is eligible for a depreciation claim and then replaced, the value of the original item can be scrapped, and the investor will claim that residual as a deduction.

 


NEW
Unused Plant & Equipment Items

SECOND-HAND –
 Previously Used Plant & Equipment Items
  • These items depreciate at an accelerated rate from 5% to 40% and between 5 to 20 years.
  • Depreciation on these items can be claimed annually.
  • The depreciation life of these items will commence when the property begins producing income (i.e. a tenant started paying rent). We will also assess the items to determine their value and expected lifespan.
  • These items depreciate at an accelerated rate from 5% to 40% and between 5 to 20 years.
  • Rather than annually, depreciation for these items will accumulate, and the total loss can be claimed to offset any capital gain when you dispose of the property.
  • The depreciation life of these items will commence when the property begins producing income (i.e. a tenant started paying rent). We will also assess the items to determine their value and expected lifespan.
  • When any item is replaced – you can begin to claim the new item annually.

IMPORTANT NOTE: SECOND-HAND P&E 
If you don’t get your existing second-hand items valued – you can’t claim them at all!

 

Any of the items in the property that qualify for depreciation, either structural or plant and equipment, can be scrapped if the item is replaced. Examples are carpets pulled up, floors polished, window treatments replaced and kitchen and bathroom renovations.

Often we see investors renovating properties before they have been assessed for a Tax Depreciation Schedule and missing out on potential deductions.

Before you dismiss the suggestion of completing a tax depreciation on your older property or can’t wait to get out the hammer and paintbrush, contact us at Real Property Matters on 1300 RPM NOW to chat about your plans and to find out how we can help maximise the return on your investment!

 

Renovating