On BMT Insider we regularly go into the many different assets and properties you can claim depreciation for.
But something new clients in particular might want to know, in reverse, is what they cannot claim depreciation for in their investment property.
The good news is that most physical assets you can claim, so the list of what you cannot claim is fortunately not too long.
Here are some of the more common things you cannot claim depreciation for in your investment property:
1. Capital works in a home built prior to the qualifying date
As a rule, any residential property in which construction commenced prior to the 15th of September 1987 will not qualify for the capital works allowance (Division 43). Investors with properties built prior to this date should still seek the advice of a Quantity Surveyor, as there are often other assets present which they can claim depreciation for. This might include qualifying plant and equipment assets or renovations completed by a previous owner, for example.
2. Plant and equipment assets in a second hand property purchased after 9th of May 2017
Under new legislation outlined in the Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 passed by Parliament on 15th November 2017, investors who exchange contracts on a second-hand residential property after 7:30pm on 9th May 2017 will no longer be able to claim depreciation on previously used plant and equipment assets. Investors can claim deductions on plant and equipment assets they purchase and directly incur the expense for. Investors who purchased prior to this date and those who purchase brand new properties will still be able to claim depreciation as they were previously. To learn more read BMT’s comprehensive White Paper document at bmtqs.com.au/2017-budget-whitepaper
3. The property’s land
You cannot claim depreciation for the land your property is situated on, or its value.
While you can scrap assets and claim depreciation for their remaining value, you cannot claim depreciation on the cost of demolition work at your property.
5. Soft landscaping expenses
Soft landscaping refers to landscape work that does not involve construction. So while you can claim depreciation for assets such as a retaining wall, which would have undergone construction, you cannot claim depreciation for grass, shrubs or trees, for example.
6. Repairs and maintenance
It’s important that investors know the difference between repairs, maintenance and capital works, so they understand what they can and cannot claim depreciation for.
Repairs are considered work completed to fix damage or deterioration of a property, such as replacing part of a damaged fence. Maintenance is considered work completed to prevent deterioration to a property, for example oiling a deck.
While you cannot claim depreciation for repairs or maintenance, any costs incurred to repair or maintain a rental property can be claimed as an immediate 100 per cent deduction in the year of the expense.
This shouldn’t be confused with a capital improvement, which occurs when the condition or value of an item is enhanced beyond its original state at the time of purchase. This must then be classified as either a capital works deduction and depreciated over time or as plant and equipment depreciation. An example of a capital works deductions could be replacing the kitchen cupboards. If any plant and equipment items are removed and replaced, for example an air conditioner, this will also be considered a capital improvement.
You can claim depreciation for capital improvements.
7. Costs associated with acquiring the property
This may include legal fees, conveyancing, building and pest inspections fees and stamp duty. You cannot claim depreciation for any of these costs.
As you can see, when it comes to depreciation there’s not a lot you cannot claim for. For this reason, it’s important to seek the advice of the specialist Quantity Surveyor who can help you uncover the thousands of assets you can claim depreciation for and maximise all the deductions you’re entitled to as an investor.