Issue 38 2015

Depreciation that’s more accommodating

Owners of income producing properties can generally claim both capital works and plant and equipment deductions. However when claiming for traveller accommodation, it’s even more important to seek advice from a Quantity Surveyor. The rate at which owners can claim capital works deductions for traveller accommodation varies from 2.5 per cent to 4 per cent.

The effective life and depreciation rates for assets in these properties are also generally shorter. Therefore assets found in traveller accommodation will often depreciate faster than the same asset found in a residential property.

As a result, investors often want their property to be classified as traveller accommodation to take advantage of the accelerated deductions.

To ensure deductions are claimed correctly, the Australian Taxation Office provides a definition to help determine what types of properties qualify as traveller accommodation. These are buildings intended to be used to provide short term accommodation on completion including:

  • Apartment buildings in which you own and lease out at least ten apartments, units or flats
  • Hotels, motels or guest houses that have at least ten bedrooms

In both cases, investors are entitled to claim capital works deductions at a rate of 2.5 per cent or 4 per cent depending on the year construction commenced.

Investors who purchase short term traveller accommodation constructed between the 16th of September 1987 and the 26th of February 1992 are eligible to claim capital works deductions at 2.5 per cent per year over forty years.

For properties constructed after the 26th of February 1992, the rate is 4 per cent per year over twenty-five years. All other types of accommodation entitle their owners to claim capital works at a rate of 2.5 per cent over forty years.

The construction completion date has no impact on your ability to claim plant and equipment deductions. These items are calculated based on their individual effective life.

Carpets are a good example of one asset which has a shorter effective life in traveller accommodation (seven years) than in residential properties (ten years).

Want to know more? View a table which compares the capital works qualifying dates for a range of different property types.