There are more than 6,000 depreciable plant and equipment assets which owners of income producing residential and commercial properties can claim deductions for.
While we provide a comprehensive list on BMT Rate Finder, we thought we’d talk about some of the most common depreciable assets we find within residential properties and some information about these items which helps to explain why it is important to ask a Quantity Surveyor for a depreciation schedule to ensure your deductions are maximised.
1/ Air conditioners
There are a few different types which a residential property may contain, for example split systems, packaged air conditioning units and room units.
These different air conditioning unit types will depreciate at a different rate as the Australian Taxation Office (ATO) provides them each with individual effective lives.
Mini split systems up to 20 kilowatts and room units have an effective life of ten years. These will depreciate at a rate of 20 per cent using the diminishing value method. Packaged air conditioning units on the other hand have an effective life of fifteen years and will depreciate at a rate of 13.33 per cent using the diminishing value method.
When air conditioning is ducted, it is important to be aware that the ducting, pipes and vents will not be a part of the plant and equipment depreciation, only the unit. This is because ducting, pipes and vents are fixed items and will therefore form part of the capital works deductions which can be claimed at a rate of 2.5 per cent for a maximum of forty years.
Almost every residential investment property has carpets installed in some of the rooms. These floor coverings are notorious for experiencing wear and tear or damage, particularly in high traffic areas as tenants and even their pets wander around.
Some landlords may be wondering when is the right timing to consider replacing existing carpets. The effective life of this item in a residential property, according to the ATO, is ten years. Using the diminishing value method, carpets will depreciate at a rate of 20 per cent.
If you decide to replace carpets before the ten year effective life is complete, be aware that any remaining depreciable value can be claimed as scrapping.
When a depreciable item is removed and there are remaining deductions available, scrapping allows investors to claim the remaining depreciable value in the year of the items removal.
Don’t forget to include a depreciation claim for any newly installed carpet once it has been added.
3/ Garbage bins
Given that the sole purpose of this item is to take out the trash, you can be forgiven for not realising that these are depreciable plant and equipment items in investment properties.
While the ATO does provide an effective life of ten years for garbage bins, these are relatively inexpensive items. Most properties will have one, but if they need to be purchased all you need to do is pop on down to your local Bunnings and pick one up in the colour variety required.
A 240 litre green wheelie bin from Bunnings will set a landlord back a mere $110. Add on a couple of dollars for a sausage sizzle and shopping for your investment property becomes an iconic Australian weekend pastime. The best part of this deal is that because the item has a cost less than $300, owner can claim an immediate write-off in the year the item is purchased.
4/ Curtains and blinds
Some investment properties feature blinds, others have curtains and at times there may even be a combination of both used throughout. However, like air conditioners, the effective life of blinds and curtains set by the ATO differ.
The effective life of blinds is ten years, while curtains have a six year effective life. Curtains of the shower variety again have a different effective life, one that washes away in just two years.
An interesting fact to be aware of when depreciating curtains and blinds is that while these items may form part of a group, the rules state that these items can be claimed individually. Therefore, if all of the items have a total value which exceeds $1,000, but individually each item is valued less than $1,000, the owner is still entitled to add them to a low-value pool and depreciate them at a higher rate.
5/ Smoke detectors
Each state has its own laws regarding smoke alarms, however as a general rule, they must meet Australian standards.
New smoke alarm requirements in Queensland are a good example of why it is important to check regularly what the requirements are before renting an investment property. As of the 1st of January, Queensland’s new requirements mean that smoke alarms must be of a photoelectric type, be hardwired to the electricity supply, be interconnected to every other smoke alarm, be installed in each bedroom, be installed in hallways servicing bedrooms and installed on the exit path of every storey not containing bedrooms. That’s a lot of smoke alarms needing installation.
Smoke alarms are one item which also must be checked to ensure they are in good working order prior to tenancy of any rental property and they are a depreciable asset.
Generally, smoke detectors in residential properties will depreciate at a rate of 10 per cent over twenty years. However, again, if they cost less than $300 they are an item which could be written off immediately.
As you can see, while these are just some of the depreciable items often found in investment properties, here are a range of things investors need to keep in mind and consider. It’s easy to get a depreciation claim wrong without staying up to date on the latest rules from the ATO, government legislation and being aware of the ins and outs of calculating deductions.
Asking a specialist Quantity Surveyor to complete a depreciation schedule and to undertake a detailed site inspection as part of this process can save you the headache and ensure everything gets claimed appropriately.