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Four depreciation tips for your property investor clients

By Bradley Beer, BMT TAX DEPRECIATION

Following the end of the financial year, many property investors will be preparing to visit their Accountant to complete their annual income tax assessment. They may also be wondering if there are ways to improve the cash flow received from an investment property.

Every investment property owner is entitled to claim deductions in the form of depreciation for their investment property. A non-cash deduction, depreciation can be claimed due to the wear and tear of a buildings structure and the plant and equipment assets contained in the property.

On average, investors can claim between $5,000 and $10,000 in deductions in the first year of owning an investment property. These deductions can significantly boost an investor’s cash flow.

Here are four tips Property Managers can teach investors that will assist their clients to understand more about claiming property depreciation this end of financial year.

1. No property is too old

An investment property does not have to be new. Both new and old properties will attract some depreciation deductions. One common myth is that older properties will attract no claim. It is worth making an enquiry about any property.

If a property owner has not been claiming depreciation or maximising their deductions, the previous two years tax returns can generally be adjusted and amended.

The Australian Taxation Office (ATO) has determined that the owner of any eligible building can claim a deduction for the wear and tear of the structural part of a building for forty years. Therefore, for a brand new building investors can generally claim the full forty years worth in deductions, while the owners of older properties can claim the remaining balance of the forty year period from the construction date.

2. Depreciation can be claimed as capital works for plant and equipment

Property depreciation can be claimed in two ways; as a capital works deduction for the structural element of the building and for the plant and equipment assets contained within a property.

Plant and equipment assets are items which can be easily removed from the property as opposed to items that are permanently fixed to the structure of the building. Items which are mechanically or electronically operated are also considered plant items, even though they can be fixed to the structure of the building. These assets depreciate based on their effective life as set by the ATO. Some examples of plant and equipment items include hot water systems, carpets, blinds, ovens, cooktops, rangehoods, garage door motors, door closers, freestanding furniture and air-conditioning systems.

The capital works deduction is a deduction for the structural element of the building. It is based on the historical costs of the building and includes materials such as bricks, mortar, walls, flooring and wiring. Property owners can only claim capital works deductions on residential buildings in which construction commenced after the 18th of July 1985 and commercial buildings in which construction commenced after the 20th of July 1982. Owners of older properties constructed prior to these dates may still be entitled to claim capital works deductions on any more recent renovations.

3. Claim renovations completed by previous owners

Any renovations completed, including those completed by a previous owner, will be discovered during a site inspection on the property. A Quantity Surveyor will then estimate the deductions available from the assets or structural additions and calculate the depreciation accordingly.

Renovations can include items which are not obvious, for example brand new plumbing, water proofing, electrical wiring or a pergola. To be eligible for a capital works depreciation deduction (building write-off), the construction must have commenced within the qualifying dates.

4. Use a qualified professional

Quantity Surveyors are qualified under the tax ruling 97/25 to estimate construction costs for depreciation purposes and are one of a few select professionals who specialise in providing property depreciation schedules. They are affiliated with industry regulating bodies and gain access to the latest information and resources through their accreditations.

BMT Tax Depreciation is the leading provider of tax depreciation schedules Australia-wide. For obligation free advice on any investment property, Property Managers and their clients can speak with one of their friendly staff on 1300 728 726.

Bradley Beer (B. Con. Mgt, AAIQS, MRICS) is the Managing Director of BMT Tax Depreciation. Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia wide service.

 

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Four depreciation tips for your property investor clients