What is tax depreciation?
Tax depreciation (also known as property depreciation) is a legitimate deduction against assessable taxable income, generated by a residential or commercial investment property.
It works by allowing property investors to deduct a portion of the original costs of plant and equipment (such as furniture and fittings) and capital works (such as renovations) on their investment property each financial year, over the effective life of that item.
The Australian Taxation Office(ATO) recognises that the value of capital assets gradually reduces over time as they approach the end of their effective life. These assets can be written off as a tax deduction - known as depreciation.
What can tax depreciation do for investors?
Claiming tax depreciation allowances on an investment property increases its value by giving investors greater return on their investment.
Depreciation allowances combined with additional negative gearing factors such as interest on a mortgage, repairs and maintenance can help investors reduce their taxable income, pay less tax and improve cash flow.
The savings made can then be redirected to other areas, such as an investment mortgage or other debt reduction.
My property is built prior to 1985, is it still worth doing?
Yes. Even if your property was built prior to the qualifying date for capital works deductions (i.e. 17 July 1985 for residential, properties) you will mostly likely be entitled to some deductions. These could include the cost of improvements prior to your purchase (for example, concreting, painting, renovations), and the value of the plant and equipment items within the property, such as blinds, carpets, stovetops, hot water systems etc.
Building after September 1987
- Can claim depreciation on both building and fixtures and fittings.
Don't know the age - 1960 estimate
- Find out how old by looking at the sales contract, building permit, occupancy permit.
- Call the local council.
- References in gas meter or electrical meter box.
Properties before September 1987 with renovations.
According to ATO rules, we can claim depreciation in 5 areas:
- Building structure – qualifying date is September 1987. Needs to have been built after this date.
- Fixtures and fittings inside the house – no qualifying date. Valued as brand new/replacement cost.
- Renovations/Extensions – these could have been done by yourself or the previous owner (eg. Kitchen, bathroom) Qualifying date – same as building structure.
- External works - fence, driveway, pergola, deck (anything outside of building but not soft landscaping eg. Turf, plants) - After 15th September 1987.
- Common area - only applies to townhouses/units/apartments – when you are paying body corporate.
How much will I be able to get back?
Every property is different. We would need to do a proper survey on site and perform a thorough inspection before we can answer that question. We will get details on the fixtures and fittings and common area.
All of these things will determine how much depreciation you can claim. It is difficult to tell you over the phone, however, I can give you a range so that you can have an indication.
For a similar property to yours (a 3 bedroom apartment) we were able to claim from $8000 to $10 000 in deductions per year for a past client. However, your deductions could be even higher depending on the fixtures and fittings in your property
- Total deductions = size, age, purchase price.
Do I have to do tax depreciation report every year?
No. Northwind Tax depreciation Schedule is valid for the lifetime of the investment. However, it is suggested you update your schedule if capital works are undertaken on the property or assets in the house are replaced.
Do you inspect all investment properties to form the depreciation reports?
Yes. Northwind conducts physical inspections of all properties under evaluation. We insist on walk-through property assessments by our qualified quantity surveyors. Our staff have the expertise and knowledge to know which items in rental properties are depreciable and how savings can be legitimately achieved by investors.
How much time is involved with the preparation of the tax depreciation schedule and do you have to inspect the property?
The time involved with the delivery of the report is generally 7-10 working days after our qualify quantity surveyors conduct the site inspection.
Is my Tax Depreciation report Tax deductible?
Yes our fee is fully tax deductible, if you engage any professional to manage your tax responsibilities such as a tax depreciation schedule, accountants fees, etc, then the fee is 100 % deductible in that financial year.