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By David Collins, Director, Cost Management | 11 May, 2020

Many property owners and investors are overlooking or underestimating depreciation deductions. We share our top five tips on property tax depreciation to help you gain a better understanding of 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 due to the impacts of COVD-19, property tax depreciation deductions could inject much needed cash flow back into your investment.

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

 

1. Breakdown claimable items

The process of maximising a claim involves the ‘devil in the detail’. A comprehensive understanding of the Tax Act coupled with construction and equipment cost skills helps divide the property into relevant items. This knowledge must then be related to the specific nature of the property and the intention and business policy of the tax payer.

A tax depreciation schedule is then prepared, detailing the depreciation entitlements available to you within your investment property. Depreciation entitlements can be broken into two categories;

Capital allowances

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

Plant & equipment items

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

 

 2. Keep track of repairs and capital works

There’s 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’ve made improvements to your property in the past financial year, such as a renovation, it’s a good idea to get an updated depreciation schedule. Improvements 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 not just the money you’ve spent on improvements, but also 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.

A repair on the other hand, 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

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 amount 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’ deductions

Do you own an investment property that you haven’t claimed depreciation on for the last two years? Or maybe 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 allows property owners to recoup some of the deductions that they may have missed on previous tax returns. You should arrange an assessment of your eligible allowances, and where applicable, revise past tax returns.

 

5. Involve an expert

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 that is accepted by the Commissioner of Taxation. Schedules last for forty years and fees are 100 per cent tax deductible.

Quantity Surveyors are recognised by the ATO as qualified practitioners for the preparation of property tax related depreciation schedules.

Altus Group handles thousands of tax depreciation schedules for residential, commercial and industrial projects every year. We are accredited with 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.

In recent months we’ve put safety measures in place in response to COVID-19 that allow us to continue to produce comprehensive property tax depreciation schedules, whilst maintaining the safety of clients and employees.

We are now conducting virtual inspections of properties when it is possible to do so.

When necessary and appropriate, we can still physically inspect your property in person. Our site inspectors are adhering to several new safety measures such as;

  • Practicing social distancing rules
  • Carrying necessary safety and hygiene equipment
  • Any symptoms and overseas travel to be discussed prior to inspection

To start claiming or maximising your depreciation deductions with Altus Group, contact us to speak to a depreciation expert.

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