Issue 32 2012

Outdoor appreciation increases depreciation

Claim deductions on outdoor structures and save

When it comes to claiming depreciation on investment properties, many investors are unaware of the deductions available on outdoor structures, fixtures and fittings.

Items outside a building can add value to a property. Rather than ignoring the street appeal, investors can include items in the yard or outdoor area to help attract potential tenants. The investor can then maximise their deductions by claiming depreciation on the eligible items in the front yard, backyard and balconies of their properties.

Deductions can be claimed on these outdoor assets as either capital works allowance or plant and equipment depreciation.

Capital works allowance, also known as building write-off, is based on the historical cost of a structure, excluding the cost of plant and non-eligible items. Outdoor structures which qualify for the capital works allowance include:

Outdoor structures
Capital Works Allowance
Outdoor Item Approximate cost First full year deduction
Retaining wall $10,000 $250
Fencing $5,000 $125
Sleepers $3,000 $75
Concrete tables $6,000 $150
Patio $4,520 $113
Clothes line $400 $10
In-ground pool $45,000 $1,125

Plant and equipment assets, including removable or mechanical assets, are also eligible for depreciation deductions. Each plant and equipment asset has an effective life set by the Australian Taxation Office.

The depreciation available on each item is calculated using the effective life. Some depreciable outdoor plant and equipment assets commonly found outside a property include:

Outdoor plant and equipment
Outdoor Item Approximate cost First full year deduction
Outdoor furniture $4,000 $1,600
Garden shed $950 $178
Garden hose $80 $80
Solar lights $250 $250
Pool filters & pumps $3,000 $750
Garden watering system $400 $10
*This example uses the diminishing value method of depreciation; it utilises the low-value pool and immediate write-off

Assets outside a property can be worth thousands of dollars. Investors should take special notice when old assets including retaining walls, garden sheds and driveways are removed and replaced during a renovation. They may be entitled to claim 100 per cent of the unclaimed value as a deduction. A specialist Quantity Surveyor is qualified to calculate values and construction costs of these items and can ensure that investors are not throwing dollars away.