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Maximising depreciation: ATO data highlights BMT as top choice for property investors
The latest data from the Australian Taxation Office (ATO) recently shed light on the deductions claimed by property investors, highlighting potential under-claiming in various categories.
According to the latest data released by the ATO in June 2024, the average residential home loan interest claim for the 2021/22 financial year was $6,517, and the average body corporate fee claim was $2,669. Property management fees averaged $1,322 and insurance averaged $768.
Property depreciation remained strong, with average claims of $3,834. Property depreciation refers to the natural wear and tear of a property and its assets. It can be claimed under two categories: Division 43 capital works for a property's structural components and Division 40 plant and equipment for easily removable and/or mechanical assets.
The ATO data indicates that average depreciation claims for the FY 2021/22 included $2,660 for capital works allowance and $1,174 for plant and equipment, bringing the average property depreciation claim to $3,834. An analysis of BMT Tax Depreciation schedules shows an average depreciation claim of $9,692 in FY 2021/22, and in FY 2023/2024, BMT's average depreciation claim was $11,432.
Based on almost 1 million depreciation schedules completed, BMT's records indicate that Division 43 capital works deductions usually make up 85 to 90 per cent of total depreciation claims compiled by BMT. This underscores the importance of capital works deductions, which can be claimed at a yearly rate of 2.5 per cent, for all properties, including older properties affected by the 2017 legislation changes.
In November 2017, the Federal Government changed how investors can claim depreciation for plant and equipment assets in residential properties. According to this legislation, if a contract on the sale of a second-hand property was exchanged after 7.30pm on 9 May 2017, depreciation cannot be claimed for existing plant and equipment assets within the property. However, new assets installed are still eligible for depreciation claims, along with capital works deductions.
The methodology employed by BMT ensures that the highest deductions are found. Physical site inspections are conducted and all relevant legislation is applied to maximise depreciation claims while ensuring full ATO compliance. These inspections substantiate any depreciation claims in case of an ATO audit, supported by the Australian Institute of Quantity Surveyors and the National Tax and Accountants' Association.
Engaging a specialist quantity surveyor to conduct a physical site inspection when preparing a tax depreciation schedule ensures all possible depreciation deductions are identified and claimed to their full potential, even if work was completed by a previous owner.
Depreciation is the only non-cash tax deduction available to property investors. Unlike loan interest and fees that require actual expenditure, claiming depreciation can return thousands of dollars to investors annually without any direct cost. The cost of preparing a tax depreciation schedule is itself also tax-deductible.
With property depreciation remaining the second largest tax deduction for property investors, requesting a property depreciation schedule from BMT Tax Depreciation will ensure that you maximise your tax deductions and optimise your cash flow.
