Top 5 tips for maximising your tax deductions

Many property owners and investors overlook or underestimate tax depreciation deductions. We share our top five tips on property tax depreciation to help you better understand potential claims and boost your cash flow.

Property investors are entitled to a range of tax deductions. Of all the deductions available, depreciation is commonly overlooked but typically the second biggest tax deduction after interest. With increased pressure on investors, property tax depreciation deductions could inject much-needed cash flow into your investment.

Here are our top five tips for claiming maximum tax depreciation deductions.

1. Breakdown claimable items by capital allowances and plant and equipment items

Start by dividing the property into claimable items. When it comes to depreciation, entitlements can be split into two categories.

Capital allowances

Capital allowances are based on the property's historical construction cost, excluding the value of plant and equipment assets (which we will discuss further below). Capital works deductions are available on non-residential properties constructed after 1982 and residential properties constructed after 1987.

Plant & equipment items

Plant and equipment items are generally, but not always, 'loose assets' (assets that can be easily removed from the property). Their condition, quality and effective life all determine the allowances available. Plant and equipment items could include hot water systems, air conditioners, security systems, carpets, blinds etc.

2. Keep track of repairs and capital works

There is a difference between repairs and maintenance vs. a capital works improvement when it comes to property tax depreciation – and the difference can affect your claim.

If you have made improvements to your property in the past financial year, such as a renovation, it is good to get an updated depreciation schedule. Specifically, improvements that enhance the condition of an item or property beyond that of when it was purchased. If the improvement is deemed capital in nature, they are eligible for tax depreciation.

Of equal importance is the items you have replaced or "scrapped". The remaining depreciable value of any scrapped items can be claimed as an immediate deduction in the year these items are removed from the property.

On the other hand, a repair is when an item or property is returned to its original state to retain its value. Repairs attract an immediate 100% deduction in the year of the expense.

3. Don't wait to claim depreciation on investment property

Property investors can arrange a tax depreciation schedule at any time of the year. Even if your property has only recently started to produce an income, you will still be able to make a partial-year claim.

Investors can make a depreciation claim based on the number of days a property was available for lease. This rule applies if you've only recently purchased an investment property or if the property was only listed as available for part of the year.

4. Review past years' investment property tax deductions

Do you own an investment property that you have not claimed depreciation on for the last two years? Or have a past claim that was previously undervalued?

The Australian Tax Office (ATO) allows tax returns to be adjusted for two years after the initial submission. This enables property owners to recoup some deductions they may have missed on previous tax returns. You should arrange an assessment of your eligible allowances and revise past tax returns where applicable.

5. Involve a quantity surveyor in producing your tax depreciation schedule

It's a no-brainer – a property tax depreciation expert will advise you of the maximum claimable benefit. They will make sure your claim is in accordance with current legislation, rulings and guidelines. Should you ever be subjected to a tax audit, you will have a professionally produced tax depreciation schedule that outlines all aspects of your claim and is delivered in a format accepted by the Commissioner of Taxation. Schedules last for forty years, and fees are 100% tax-deductible.

The ATO recognises Quantity Surveyors as qualified practitioners for the preparation of property tax related depreciation schedules. Maximising any claim requires a comprehensive understanding of the Tax Act and expertise in determining the cost of construction and equipment.

Getting help with your tax depreciation schedules

Altus Group handles thousands of tax depreciation schedules for residential, commercial and industrial projects every year. We are accredited by the Tax Practitioners Board (TPB) as qualified Tax Agents and members of the Australian Institute of Quantity Surveyors (AIQS), ensuring the highest possible standards of professional excellence.

Speak to one of our tax depreciation experts to start claiming or maximising your depreciation deductions today.