Adding value with depreciation

Investment properties that generate income for the owner are eligible for significant taxation deductions.

Of all the tax deductions available to residential property investors and commercial property owners, property depreciation is most often missed because it is a non-cash deduction – the investor does not need to spend money to claim it. A building and its fixtures depreciate whether the owner claims it or not.

“Research shows that 80 per cent of property investors are failing to take advantage of property depreciation and are missing out on thousands of dollars in their pockets,” says Bradley Beer, managing director of BMT Tax Depreciation.

As a building gets older, items wear out – they depreciate. The Australian Taxation Office (ATO) allows property owners to claim this wear and tear as a deduction.

Claiming depreciation on an investment property can make a big difference to an investor’s cash flow. For this reason, it is recommended that property managers understand the basics of property depreciation so they can use it to add value to their existing service.

Property managers should encourage their clients to engage a quantity surveyor to complete a Tax Depreciation Schedule. This schedule outlines the deductions available on the specific property and is used by the investor’s accountant in preparing a tax return.

The preparation of a Tax Depreciation Schedule should always include a site inspection where the quantity surveyor will take detailed photos and notes documenting sufficient evidence to prepare the report. The report will include a value of each and every qualifying plant and equipment item within the property, the cost of construction at the time the building was built and a projection of the deductions claimable by the owner per financial year over a 40-year period.

It is often a surprise to property investors to find that property depreciation will attract significant depreciation benefits for both new and old properties. What’s more, property owners who have not been claiming depreciation are able to go back and amend previous returns to claim missed deductions in previous financial years.