Depreciation FAQ

 

So What is a Tax Depreciation?

Depreciation is an often overlooked component of property investment despite being a perfectly legal way of minimising taxation.

Failure of Investors to Claim for Property Depreciation.

Most people do not claim for property depreciation because either they do not understand that they are allowed to do so or they do not realise how much money they are missing out on by failing to claim.
Typically the value of Depreciation that can be claimed for a residential property may range between $1,500 and $ 15,000 per year.  For someone in the top marginal tax bracket, the effect of tax depreciation is to put between $650 and $6,500 per year back in their pocket in the initial full year of claim alone.

 

What is Property Tax Depreciation?

Just like a car declines in value, so does an investment property. If the property is being used to generate an investment income, the Australian Taxation Office (ATO) allows the property owner to claim back the decline in building value by way of a Tax Deduction.
The amount of the deduction varies depending upon the date of the original building construction but is either 2.5% or 4% of the Capital Works Component of the building cost. In addition to this flat rate the ATO recognises that a number of building components (plant and equipment) have a shorter life than say bricks and mortar. Appliances, carpet, air-conditioning, blinds, smoke detectors are just a number of the ‘wear and tear’  items that have a shorter effective life than the main building structure and as such are granted an accelerated  rate of depreciation.
Additionally areas of ‘common property’ such as corridors and stairways in an apartment block may be proportionally claimed by the Owner as part of their depreciation claim.
Over-all, by utilising the benefits of property Depreciation, the investor can turn what may otherwise be a negative cash flow into a positive cash flow.

How many Years Can be Claimed?

Owner’s who have not previously made a depreciation claim are entitled to claim for up to 4 prior years of ownership. Effectively this may result in a deduction of tens of thousands of dollars in the initial year of claim.

The Use of a Quantity Surveyor

Quantity Surveyors are recognised by the ATO as appropriately qualified professionals for the purpose of preparing Tax Depreciation Schedules (Depreciation Reports).  The reason for this is that Quantity Surveyors have expertise in the valuation of construction costs.
In the instance that the original building cost is not available, or renovations and improvements have been made to the property, a Quantity Surveyor will be able to prepare an estimate of the construction cost.

Not all Quantity Surveyors specialise in tax depreciation claims and it is recommended `that the quantity surveyor provide an ATO compliant report that contains the following level of information:-

Additionally it is recommended that the Quantity Surveyor confirm that they are current members of the Australian Institute of Quantity Surveyors (AIQS)

 

Why is there such a difference in prices for Tax Depreciation Reports?

There are a number of reasons for the difference in prices for depreciation reports. Some companies specialise in depreciation and want your work and other companies will do the work for a price – so always shop around and compare what you are getting for your money.

Can I claim Tax Depreciation on an Old Building?

Yes, we guarantee a minimum depreciation claim of 3 times our fee in the first year of claim or our report will be issued FREE of charge.

What parts of a Property can’t be claimed?

You can claim tax depreciation for most parts of a building that is related to the creation of assessable income, however there are some exclusions such as the cost of landscaping and retaining walls that do not play an inherent part of the buildings function.
Additionally as an Owner-Builder, you are not entitled to claim for your labour or development profit.

Do I need to hold Receipts?

You only need to hold records for elements of work that were undertaken after the date that you purchased the property. These receipts should be kept on hand in the event that the ATO elects to audit your depreciation claim. For all other work completed by a previous owner, such as the cost of the original building, the ATO will accept the valuation of a Quantity Surveyor.