Property Tax Depreciation

What is deprecation schedule ?

A report that details, year by year, the deductions which can be claimed based on the cost of a building and fittings.Depreciation is a accounting concept by which the cost of an asset, for example an investment property, should be written off or deducted from the income it helps produce over its useful life. Depreciation recognises that a asset is subject to wear and tear and has a limited useful life.

A (property) tax depreciation schedule is basically a document that summarises to your accountant the assets in an investment property, their value and the amount of depreciation that can be claimed against the investment property income year on year.

The advantage of depreciation as a tax deduction over all other deductions, including negative gearing, is that it is a non-cash deduction, that is, no expenditure has to be spent to claim it. Basically you have an automatic right to claim it without any additional cost. As a general rule, the amount that can be claimed is based on the construction value of the property structure.

WhY depriciate?

In one simply phrase – maximise your return on investment. Depreciation allows you to claim the cost of the construction of a building over time. This deduction reduces your taxable income and tax payable and therefore increases the return on your investment.

What can be claimed

Plant and Equipment (also known as Division 40)

This category related to plant, fittings or furnishing that are not considered to be Division 40 and generally considered to have a shorter useful life and therefore attract higher rate of depreciation. Examples of Division 40 items include dishwashers and ovens, blinds and curtains, carpets, floating floor and central heating units just to name a few

Capital Works (also known as Division 43)

Capital Works relates to the permanent portion of the property, that is the building structure itself and anything attached to the building that can be considered permanent by  nature. Examples include walls, roofing, plumbing, electrical wiring, windows, driveways, fencing.

 

 

Different rates of depreciation are applicable depending on the type or use of the building and the year of construction.        

Type Of Property Construction Date Deduction Rate per year
Residential
18-jul-85-15-sep-87

16-sep-87+
4%

2.5%
Non Residential
20-Jul-82 - 21 - Aug - 84

22 Aug 84 - 15 Sep 84

15 Sep 87+
0%

4%

2.5%
Structural Improvements
26 Feb 92+
2.5%
Traveller Accommodation
21 Aug 79 - 21 Aug 84

22 Aug 84 - 15 Sep 84

15 Sep 87 - 26 Feb 92

26 Feb 92+
2.5%

4%

2.5%

4%
Manufacturing
20 Jul 82 - 21 Aug 84

22 Aug 84 - 15 Sep 87

15 Sep 87 - 26 Feb 92

26 Feb 92 +
2.5%

4%

2.5%

4%

Case Study

See how a depreciation schedule can improve your return on investment by allowing you to claim the cost of construction on your investment properties

New 3 bedroom contemporary house owned by couple earning net $150,000 p.a 

New 2 bedroom apartment owned by Self Managed Super Fund

Sample Report

Download a Build Cost sample depreciation schedule / report

Frequently asked questions

Why should I get a schedule completed?

A depreciation schedule may provide anywhere from thousands to hundreds of thousands of dollars of legitimate deductions giving significant boost returns on a investment property.

 

Is a depreciation schedule required every year?

No. Only a single depreciation schedule is generally required. A schedule may have to altered should renovations be completed or additional equipment is installed / updated. In most cases we can do these at no extra charge providing the appropriate information can be provided.

 

I didn’t know about claiming depreciation. Can I amend previous returns?

Yes. The ATO allows for amendments to the prior two years of tax returns.

 

Why didn’t my accountant tell me about this?

Unfortunately some accountants are still unaware of the ability to depreciate the cost of buildings. We still come across this scenario on a regular basis. If required, we are more than willing to communicate with your accountant on your behalf.

 

Can I or my accountant or agent complete a schedule on my behalf?

No. Taxation Ruling 97/25 explains in paragraph 27 “Unless they are otherwise qualified, valuers, real estate agents, accountants and solicitors generally have neither the relevant qualifications nor experience to make such an estimate.

 

Who can complete a depreciation schedule?

Taxation Ruling 97/25 explains in paragraph 28 that “Appropriately qualified people might include: • a quantity surveyor, who has expertise in the relevant type of construction; • a clerk of works, such as a project organiser for major building projects; • a supervising architect who approves payments at each stage in major projects and who may approve individual payments to subcontractors in smaller projects; or • a builder who is experienced in estimating construction costs of similar building projects. Any person or company that falls into the above category cannot provide a schedule however. The Tax Practitioners Board stipulates that as the party is providing tax advice in the form of a depreciation schedule, they must also be a registered tax agent with the appropriate experience and qualifications.

Is my investment property too old to get a schedule completed?

In most cases we find that older properties will produce enough value in deductions to make an effective contribution. If Build Cost cannot find deductions that is at least of four times the cost of the service, the service is free.

How long does a report take?

We typically try to meet a 14 day maximum time delivery irrespective of the time of year. On occasion this may take longer if the tenant or an agent is difficult to contact.

 

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