Quick Q&A: Property tax depreciation

September 27, 2017
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Q: Don’t I need to spend money to claim money back?

A: No! Property depreciation is what is called a ‘noncash deduction’. This means you don’t need to spend money to claim it. The Australian Taxation Office (ATO) allows property owners to claim wear and tear to a property – commonly known as depreciation – as a legitimate tax deduction.

Q: What can I claim?

A: There are two kinds of depreciation you can claim: plant/equipment (or fit-out) costs and capital works (or construction) deductions. Plant and equipment depreciation usually refers to mechanical fixtures or those that can be removed from the property without causing damage to the main structure (think items like stoves, carpets, window furnishings, heating and so on).

Depreciation on plant and equipment can be calculated in one of two ways: the prime-cost method (PC), and the diminishing-value method (DV).

You calculate the PC using this formula:

Fit-out cost × (100% / lifespan of item for tax purposes) = deduction

You calculate the DV (on properties purchased on or after 10 May 2006) using this formula:

Base value × (days owned / 365) × (200 per cent / lifespan of item for tax purposes) = deduction

Q: How can I claim depreciation?

A: Generally, you need to enlist the help of a specialist quantity surveyor to complete a tax-depreciation report. This outlines any deductions available on your property and will be used when preparing your tax return. If you are claiming depreciation, it’s best to use an accountant to prepare your tax return in order to get the most from your deductions, as well as to ensure they are legitimate.

Q: I can claim only renovations I have completed, right?

A: Wrong! Your quantity surveyor can estimate anything in the property that occurred during a previous renovation for deductions. For capital improvements to be eligible for capital works deductions, work must have started after 18 July 1985 for residential properties and after 20 July 1982 for commercial buildings.

Q: Is my property too old?

A: No, both new and old properties are eligible for depreciation deductions. Of course, new property will have more depreciation allowance than older property, but the ATO allows investors to claim up to 40 years of property depreciation on a brand-new building, and the balance of the 40-year period (from date of completion) is claimable on an older property.

Clearly, there are many ways to maximise your returns on investment in property, which is why it’s always best to seek professional advice. BMT Tax Depreciation offers a useful (and free!) depreciation calculator on its website, and you can find similar useful resources at the ATO website as well.

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