Issue 32 2012

Claim $4,852 in twenty nine days

Boost cash flow immediately upon purchase

Even if a property is purchased towards the end of a financial year, a tax depreciation specialist can provide valuable deductions in this short time.

To maximise the depreciation benefit of a newly purchased investment property, owners should obtain a tax depreciation schedule leading up to settlement.

If a property has been owned and rented for only a short period, investors often postpone obtaining a tax depreciation schedule until the next year. However, there are ways in which partial year deductions can be maximised, resulting in extra cash for the owner.

Usually, the total depreciation available in the first financial year is adjusted according to the portion of the year the property is owned. For example, if a property is owned for six months, then 50 per cent of the depreciation could become available. However, specialist Quantity Surveyors can use legislative tools to make partial year claims beneficial to property owners, regardless of the time a property is owned and rented.

Immediate write-off is one tool used. Any item added to a property, costing less than $300, can be immediately written off within the first year. This is regardless of how many days the property is owned in that year.

Low-value pooling can also be used to maximise claims over a short period of time. Low-value pooling applies to items in an investment property that are worth less than $1,000. Placing items in a low-value pool allows the owner to accelerate the rate of depreciation, increasing deductions earlier.

A high quality tax depreciation schedule should include a partial year claim based on the time the property is rented.

The following example shows how the partial year portion of a BMT Tax Depreciation Schedule can maximise a property owner’s deductions.

A house purchased for $550,000 is rented starting from June 2nd. The table below shows a summary of the deductions available to the owners after renting the property for only twenty-nine days of the financial year.

Depreciation claimed in first twenty-nine days
Plant and equipment $4,082
Capital works allowance $770
Total claim in 29 days -$4,852

Including the capital works allowance and all plant and equipment deductions, the owner claimed back $4,852 for the first financial year. Even though the property was only owned and rented for twenty-nine days, substantial deductions were found. In a BMT Tax Depreciation Schedule, the partial year claim is listed in a separate column, making the process simple for Accountants.

Immediate write-off items (cost less than $300)
Garbage bins
Garbage door controls
Bathroom accessories
Heat light & exhaust unit
Door closers
Smoke alarms
Low-value pooled items (cost less than $1,000)
Rangehoods
Blinds
Cook tops
Dishwashers

The plant and equipment deductions for the first twenty-nine days totalled $4,082. By using the immediate write-off allowance for items costing less than $300, BMT was able to find $1,288 for this property owner. From low-value pooled items, the owner was able to claim back $2,274. The remaining items were depreciated using their effective lives and scaled down based upon the small portion of the first financial year. They account for the remaining $520 in deductions.

This example shows that even when owning and renting a property for a few weeks of the financial year, claiming depreciation makes a significant difference to the owner’s tax deductions. By utilising the legislation available through the Australian Taxation Office, depreciation claims can be truly maximised for the first partial year. Even if a property is purchased just before the end of the financial year, owners should seek the services of a specialist Quantity Surveyor to accelerate the depreciation benefits.