Deductions don’t stop at your doorstep
We always laugh when we hear stories of people who stick their money in a pickle jar and bury it in their backyard rather than leave it with a bank. The sad fact is that thousands of Australian property investors are doing the same thing by leaving unclaimed tax deductions buried down in the bottom of their garden.
Many property investors claim for the structure and assets within their investment property, but overlook the deductions just outside the front door. Property depreciation deductions can be claimed for structures and assets on the outside of an investment property just as much as those inside. To get the most out of your tax deductions, you should always make sure that your depreciation claim includes all outdoor assets on a property, otherwise you could find yourself missing out on thousands of dollars in additional cash flow.
Know your deductions
The Australian Tax Office (ATO) classifies depreciable items on investment properties into two separate categories; capital works and plant and equipment.
If you have a verandah or patio on your investment property, then capital works deductions could be available. Any permanent structures or non-removable assets are claimable as capital works for their effective life, so even a clothesline could yield you some deductions. Below is a list of some common capital works depreciation can be claimed for, but that many investors are missing out on.
Plant and equipment deductions on the other hand are claimable for any removable or mechanical fixtures and fittings such as furniture, sheds or exterior lighting. The table below shows some common outdoor plant and equipment items and their potential depreciation deductions to demonstrate the claims you may be missing out on.
Appreciation with depreciation
If your investment property is on a large plot of land, remodelling the backyard to make the most of the space available is a great way to increase the property’s appeal to potential tenants and purchasers. Property depreciation is a powerful means of recovering some of the cost of these improvements, allowing you to build bigger and better to enhance the gains received from these additions.
Don’t get left out in the cold
Wear and tear continues to occur on investment properties whether it is being claimed for as depreciation or not. It’s definitely worth checking to make sure you are claiming for the structure and fittings on the exterior of your property to ensure your deductions are being maximised, otherwise a significant portion of your cash flow could be getting left out on the back lawn rather than your back pocket.