One of the most common questions specialist Quantity Surveyors are asked by investors when they call to discuss whether it’s worthwhile obtaining a tax depreciation schedule for a property is ‘how will the building’s age impact deductions found?’
While the age of a building may make a difference to the overall deductions found; it is always worthwhile making the call to discuss whether it is feasible to provide the schedule for a particular property.
Many investors make the mistake of not making this call, as they assume their property will be too old and therefore think claiming the depreciation deductions won’t be beneficial. Below we’ve provided some of the main reasons why this often isn’t the case and why it’s best to seek expert advice.
There are two elements you can depreciate
In any investment property, there are two elements that make up a depreciation claim. These are the capital works allowance available for the gradual wear and tear of the building structure and plant and equipment depreciation for the mechanical or removable fixtures and fittings found within the property.
The Australian Taxation Office (ATO) does place some restrictions on whether owners can claim depreciation for the capital works component. For residential properties, construction must have commenced after the 15th of September 1987 and for commercial properties this date is the 20th of July 1982. However, no such restrictions apply when depreciating plant and equipment items.
Deductions for plant and equipment assets will be calculated based on their individual quality using an effective life the ATO set for each item. This effective life will be reset from the date of settlement. There are over 6,000 plant and equipment assets recognised by the ATO and these can result in substantial depreciation claims that benefit the property owner.
Older properties have often undergone renovations
If you’ve just purchased an older property, the chances are that at some time since the building was originally constructed it may have undergone some form of renovation. While sometimes renovations to a property are obvious, you may not even be aware they have occurred. Updated plumbing and electrical wiring are two good examples of work that could have been completed that aren’t obvious.
Investors can claim depreciation deductions for any structural works which have been completed within the relevant dates. For an investor who has purchased a property originally constructed in 1985 for example, but with a kitchen updated and an outdoor entertaining area added in the 2010, this will mean they can claim the capital works allowance for these new additions.
The cost of a depreciation schedule is worthwhile
After outlaying expenses to acquire an investment property, often investors don’t want to spend any more money. The good news is that obtaining a tax depreciation schedule from a specialist Quantity Surveyor is 100 per cent tax deductible.
Depreciation schedules range in cost but it is recommended to obtain a comprehensive schedule which includes a detailed site inspection of the property.
Many specialist Quantity Surveyors will provide a guarantee that the deductions you will receive in the first full financial year will outweigh any costs involved in obtaining a depreciation schedule.
Ultimately, the deductions you claim reduce your tax liability and therefore improve your cash return. This additional money provides investors with cash flow they can use to help offset any costs involved in holding a property.
Obtaining a depreciation schedule, no matter the age of a property should be a priority for all investors. A quick phone call is all that is needed to establish an estimate of what can be claimed and discuss what is involved in the process.