Saving Tax by Maximising Your Depreciation

Depreciation calculationsDid you know that you can claim the depreciation of your investment property on your taxes just like you can claim wear and tear on your car, as long as you bought it for purposes of bringing in income?

The different types

There are two different types of allowances. One is depreciation on plant and equipment, which means items such as appliances and window coverings that are inside the building. The other is depreciation on the building itself, and this refers to construction expenses such as brickwork, roof and concrete.

Making a claim

To make a depreciation claim, you’ll need a depreciation schedule. This is a report that shows the depreciation of different categories of your property. Immediately after settlement is the best time to have the depreciation schedule prepared, because this allows you to document the true state of the property at the time of purchase. Even before the tenant moves in is ideal, as this avoids disruptions to both parties.
Keep in mind that the depreciation schedule must be prepared by quantity surveyors, not your accountant, real estate agent, property manager, or anyone else. That is in line with Tax Ruling 97/25 issued by the Australian Taxation Office. You will be required to have an inspection by a trained quantity surveyor who will take note of and photograph all depreciable items. This documentation is important as you can use it as evidence should you be audited.

Does your property qualify?

Residential properties built after July 1985 are eligible for property depreciation claims. If your property is older than this, you can still claim depreciation on plant and equipment.
If your property is renovated, you can still make a depreciation claim, even if the renovations were completed by the previous owner. Again, if the cost of renovation is unknown, you will need a quantity surveyor to make the estimation. Having a depreciation schedule prepared is not free and takes a few weeks, but the upside is that the fees are 100% tax deductible and it’s usually worth it – take a look at an online depreciation calculator for an estimate of what you’ll save on your taxes.

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