Before you know it, 30 June will be here. If you haven’t already, organise your depreciation schedule so you don’t miss out on valuable deductions.
Eighty per cent of landlords fail to claim the maximum depreciation deductions available, according to quantity surveying firm BMT Tax Depreciation.
For some, it’s simply because they haven’t yet had a depreciation schedule completed. This is a report done by a quantity surveyor who assesses the building, plant and equipment on the property, and the deductions that can be claimed. To have a depreciation schedule done generally costs between $650 and $700, which is 100% tax deductible.
Other investors fail to make deductions for depreciation because they’re not aware of the benefits. Deductions are available for:
- Cost of building structure. For properties or structural work completed after 15 September 1987, property investors can claim 2.5% of the cost of the building structure annually for up to 40 years. Additional deductions may be available for some structural renovations, even if they were completed by a previous owner.
- Plant and equipment. Property investors can claim between 10% and 20% of the value of plant and equipment such as carpets, blinds, hot water systems, air conditioners, cook tops and smoke alarms.
On average, investors can claim between $5,000 and $10,000 in depreciation deductions in the first financial year alone.
The greatest depreciation benefits come from new homes, with up to 60% of the purchase price potentially tax deductible over the life of the property. According to BMT, a brand-new residential property valued at $300,000 could potentially provide a landlord with cumulative depreciation claims for the structural component of $30,000 over a 5-year period.[i] And don’t forget, on top of that the landlord can claim depreciation deductions for plant and equipment within the property. That said, it’s important to note that deductions are calculated on a case-by-case basis and every depreciation assessment is different.
Significant tax allowances won’t always offset some of the costs of purchasing or building a brand-new investment home, and that’s also where a tax depreciation schedule can prove useful.