As they organise their invoices, although investors are aware they are able to claim back many of the expenses they have incurred for their investment property, often they do not claim all of the deductions available to them.
Of all the deductions available to investors, depreciation is still the most often missed. Recent statistics released from the Australian Taxation Office (ATO) suggest that investors claimed an average of $3,168 in total depreciation deductions for the 2011-2012 income year.
By comparison to tens of thousands of depreciation schedules prepared by BMT Tax Depreciation over the past eighteen months, the average claim should be around $10,100 in the first full financial year and $7,350 per year on average for the first ten years of owning a property. These figures suggest that investors are missing out on around $4,182 in deductions.
This cash flow can make a substantial difference to investors and even a basic understanding of depreciation can help Property Professionals to guide their investor clients towards making an informed decision. So, let’s look at some of the reasons why all investment property owners should claim depreciation.
- Deductions are available for the building structure and plant and equipment assets
Both new and old properties will attract some depreciation deductions. This is because deductions are not just available for the buildings structure via a capital works deduction. Investment property owners are also entitled to claim substantial depreciation deductions for all plant and equipment assets contained in the property.
Though property owners can only claim capital works deductions for residential buildings in which construction commenced after the 18th of July 1985, depreciation of plant and equipment is not limited by a property’s age. It is also the condition and quality of each item which contributes to the depreciable amount.
In a standard residential property, more than 15% of the total construction cost is made up of plant and equipment assets. This can represent a significant proportion of the total depreciation available and thousands of dollars in deductions for the owner.
The ATO also allow owners to claim a capital works deduction for any recent renovations that have been made to an investment property, even if the renovations were completed by a previous owner.
- Deductions are available for forty years
The ATO has determined that the owner of any building eligible to claim the capital works deduction can do so for forty years. While investors of newer buildings can generally claim deductions for the full forty years, owners of older properties can still claim the remaining balance left of the forty year period from the construction completion date. A specialist Quantity Surveyor will always outline the full deductions available over this period within a tax depreciation schedule for both the owner and their Accountant.
- The cost to organise a depreciation schedule is 100% tax deductible
In order to claim depreciation, investors are encouraged to consult with a Quantity Surveying company who specialise in tax depreciation. They will prepare a tax depreciation schedule for both the owner and their Accountant to use when completing their annual tax assessment. The fee to organise a schedule is 100% tax deductible. If an investor has not claimed depreciation in the past, the last two years tax returns can also be adjusted.
- Enlist the assistance of a depreciation expert
Ensuring any property investor’s depreciation claim is maximised requires a combination of construction costing skills and thorough knowledge of current tax depreciation legislation. For this reason, it is recommended to contact a Quantity Surveyor who specialises in tax depreciation for advice and assistance.
With more than sixteen years experience in the preparation of tax depreciation schedules, BMT Tax Depreciation helps Property Professionals all over Australia to educate their clients about the benefits of property depreciation.
BMT can provide Property Professionals with a range of complimentary information and services which will add to their existing service. If you would like to request material, arrange a training session for staff or clients, or make a general enquiry, contact BMT Tax Depreciation on 1300 728 726 or check out the Property Professionals page on the BMT website.
