Even seasoned property investors find searching for the right property highly competitive in today’s residential real estate market.
For investors looking for an alternative, short term traveller accommodation could be worth considering given the depreciation benefits that are unique to this type of property.
Investing in traveller accommodation allows investors to take advantage of the opportunity to claim accelerated deductions.
What is traveller accommodation?
Traveller accommodation is classified differently from short term holiday rentals, which are typically properties used to generate short term holiday rental income.
The Australian Taxation Office (ATO) defines traveller accommodation as construction where the building is intended to be used on completion to provide short term accommodation to travellers, such as:
- Apartment buildings in which you own or lease at least ten apartments, units or flats
- Guest Houses with at least ten bedrooms
What depreciable assets could I claim?
Typically, property investors can claim both capital works and plant and equipment deductions for income producing properties. However when claiming depreciation for traveller accommodation, it’s even more important to seek advice from an expert Quantity Surveyor, like BMT Tax Depreciation, as the rate at which owners can claim capital works deductions for traveller accommodation varies from 2.5 per cent to 4 per cent.
To ensure deductions are claimed correctly, the ATO provides a definition to help determine what types of properties qualify as traveller accommodation.
Plant and equipment items for traveller accommodation include all of the property’s furniture and furnishings, kitchen appliances, crockery, cutlery, laundry facilities and even linen.
The effective life and depreciation rates for these items are generally shorter, as assets found in traveller accommodation will often depreciate faster than the same asset found in a residential property.
Let’s take a look at an example
BMT recently completed a tax depreciation schedule for a new boutique hotel in the beautiful Hunter Valley.
Capital works deductions:
- The new building structure, costing the owners $22,110,587, was built in 2018 and depreciates at 2.5 per cent over forty years. The owners could claim $884,423 in capital works deductions annually for forty years
Plant and equipment deductions:
- All of the individual assets (appliances, furniture, furnishings, etc) were valued from the date of purchase and assigned new effective lives in accordance with their intended use. Assets include everything from air conditioning and hot water systems to housekeeping assets – bedding, ironing boards, cooking utensils and landscaping items such as chainsaws, mowers and brush-cutters.
The total for plant and equipment items were valued at $5,874,840. In the first full year, the owner could claim $1,199,709 in plant and equipment depreciation. Over five cumulative years, the total deductions they could claim for plant and equipment were $3,742,440.
Before purchasing an investment property, contact the expert team at BMT on 1300 728 726, to assist you in making a more informed decision about the most suitable investment property for you.