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.
In this article we will discuss the following common assets:
1/ Air conditioners
The recent summer has been a scorcher so it is no surprise that air conditioners are on the list of most common assets we discover in a residential investment property.
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.
2/ Carpets
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
Yes, even the good old wheelie bin which sits on the curb can be claimed.
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
Since 1997 powered smoke alarms have been required to be installed in any newly built or renovated property under the Building Code of Australia.
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.
Hi,
Would the followings be considered as part of the capital works deductions (rental property) which then can only be claimed as a rate of 2.5%
– replace the switchboard to compliance with the current state law;
– replace septic lines and pits
I have replaced a ducted heating unit, would the depreciation rate be 25% based on the Diminishing Value (DV) method?
Many thanks
Danny
Hi Danny,
Thank you for your comment. If an asset has been completely replaced it would typically be considered an improvement which is depreciable and claimed over the effective life of the asset. In a residential property, switchboards, septic lines and pits are capital works assets (Division 43) and depreciated at 2.5% over 40 years.
The ducted heating unit is a plant and equipment asset (Division 40) that has an effective life of 20 years. Using the diminishing value method, the rate of depreciation is 10% and using the prime cost method, the rate of depreciation is 5%.
If an existing asset is simply repaired or had maintenance carried out, then it may qualify for an immediate deduction if the work is conducted after the property is rented.
You can read more about repairs, maintenance and capital improvements here.
It’s best to speak with your accountant to determine if the works you have carried out qualify for an immediate deduction.
For more information or to order or update your depreciation schedule please get in touch with BMT on 1300 728 726, via email at
info@bmtqs.com.au or Request a Quote.
Thanks,
The BMT Team.
Hi
Can you please advise me the effective life of carpet tiles for a residential property?
Thank you
Hi Tamara,
Thanks for your comment.
The effective life of carpet is eight years. You can use our free rate finder tool online if you’d like to learn more about the effective life of different assets https://www.bmtqs.com.au/depreciation-rate-finder
Thanks,
The BMT Team
Would second hand split air conditioner be depreciated at 10 years less the years already had with the previous owner even if the unit price is less than $1000?
Hi Monica,
Thanks for your comment.
Yes, the effective life of a split system air conditioning unit is 10 years, however whether you’re eligible to claim it will depend on when you purchased the property.
If you purchased and rented the property out before 7:30pm on 9 May 2017 then you may be eligible to claim the asset. However, if you purchased the property after this date, unfortunately you won’t be able to claim it.
Should you have further questions, please can contact our expert team on 1300 728 726 or visit our website at bmtqs.com.au for more information.
Thanks,
BMT Team
Hi, just a question re carpet depreciation. Given the ATO’s estimate of a carpet’s life expectancy as 10years, would a depreciation rate of 10% be applicable, rather than 20% as quoted in the above report.
Many thanks,
B Collins
Hi,
The depreciation rate for carpet will depend on the type of depreciation method you use as well as the date you purchased your property.
If you purchased the property before the 1st of July 2019, the depreciation rate will be 20 per cent based on the Diminishing Value (DV) method and 10 per cent based on the Prime Cost (PC) method.
If you purchased your property after this date, the depreciation rate will be 25 per cent based on the DV method and 12.5 per cent based on the PC method.
Thanks,
BMT Team