If you’re a property investor, make sure you’re claiming all the deductions that you can. Property investors often ignore depreciation and miss out on some of the huge tax benefits.
Under Australian income tax law, you are allowed to claim deductions for expenses incurred in earning rent, including the depreciation of assets in the buildings and the cost of the building itself. Read on for five helpful depreciation hints below.
- Investors can claim capital works deductions for the construction cost of residential buildings, and these capital works deductions can amount to large values. Capital allowances can be claimed on your original residential property, where it was constructed after the 15 September 1987, or on any subsequent renovations or improvements completed by the previous owner or yourself, says MCG Quantity Surveyors.
- Investors can also claim depreciation for wear and tear on fixtures and fittings in the property, such as carpet, blinds, wardrobes, curtains, ovens and many more items. Assets are depreciated over their effective life, on which the ATO regularly publishes guidelines.
- As soon as you buy an investment property, you should get a tax depreciation schedule (TDS) prepared by a quantity surveyor. By claiming their full depreciation deductions, property investors can greatly improve the cash flow of any investment property, regardless of whether it is a house or unit. A TDS lists all items in a property that are falling in value, as well as annual depreciation allowances, including capital works deductions. The report can cost between $500 and $1,500 (which is tax deductible) and can cover up to 40 years of deductions.
- Some new properties come with a TDS, but investors should always get their own prepared to ensure they are taking full advantage of depreciation allowances.
- The 2017-18 federal budget limited depreciation claims on properties purchased after 9 May 2017. A property investor can no longer depreciate plant and equipment assets installed by a previous owner. “Only components that you have purchased yourself will be claimable,” says MCG. Properties purchased before 9 May 2017 are unaffected by the changes.