Frequently Asked Questions Schedule?
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.
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.
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.
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.
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.
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.
The time involved with the delivery of the report is generally 7-10 working days after our qualify quantity surveyors conduct the site inspection.
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.
- We do our work on a very detailed level.
- Superior customer service.
- Fast results - our turnaround time is usually 7-10 working days from the date of inspection.
- We liaise with your real estate agent and accountant, and any other advisors involved in your property investment. It's all part of our service.
- Comprehensive report and expert advice gives you the freedom to make informed decisions.
- All work conducted by experienced highly qualified Quantity Surveyors who have the relevant qualifications, knowledge and experience in the field of Tax Depreciation.
- Full Compliance with ATO Rulings and AIQS Guidelines.
Unfortunately, the ATO states that only the building and the fixtures and fittings can be depreciated, as well as any construction to the property, such as fences, paving, shed, etc. Landscaping and lawns also cannot be depreciated as they are living things (only non-living items can be claimed).
- We gather relevant information from you
- We liase with your property manager/tenant to organsie a suitable time to go out and inspect
- We conduct a thorough site inspection, looking at the building structure and all fixtures and fittings
- We compile a detailed report for you
- We send a copy of the report and invoice (100% tax deductible) to your accountant on your behalf
Your depreciation specialist will asses the property assets and items and list them in sections in the report to make it easy to read and understand for your accountant. The are two defined categories:
- Plant and Equipment Depreciation (fixtures & fittings) Division 40 - this covers assets associated with your investment property that have a limited lifespan and decrease in value over time as a result of age and wear and tear. It includes fittings such as carpets, lighting, appliances (stove, fridge), furniture, security systems, air conditioning units and even garbage bins which are provided as part of the property.
- Capital Works Depreciation (building structure) Division 43 - this covers aspects of the building, including constructions, extensions, alterations and improvements of a structural nature. It includes work undertaken such as extensions for a garage or patio, kitchen renovations, bathroom makeovers or the addition of a gazebo, carport, fence or sealed driveway. You need to include all items to get the full return on your tax. This where a quantity surveyor comes in, they can visit the property to ensure you are not missing any items on the depreciation report.
- Thorough inspection of the property
- A copy of the detailed report
- Both Prime Cost & Diminishing Values used (your accountant will tell you which is better for your circumstances)
- A breakdown of plant & articles (items which have a higher depreciation rate)
- Annual depreciation totals
- Backdated reports to date of purchase/first rental
Two methods can be applied when depreciating property; the diminishing value method or prime cost method. The intentions of the property investor will determine which depreciation method will be most suitable for them. Under the diminishing value method, the deduction is calculated as a percentage of the balance you have left to deduct. Under the prime cost method, the deduction for each year is calculated as a percentage of the cost.
If you claim using the diminishing value method, you are claiming a greater proportion of the assets cost in the earlier years of the effective life. For example, if you purchased the property for the purposes of a short term investment and planned to sell it in five years time, the diminishing value method may be a more attractive option to take, as it provides higher returns over the earlier years. If you claim using the prime cost method, you are claiming a lower but more constant portion of the available deductions over the life of the property. This could be more suitable if you were intending to retain ownership for a longer period of time.
Our experience shows that most investors employ the diminishing value method as depreciation deductions under this method are cumulatively higher over the first five years of ownership.
A report can be back dated to the date the property first became available for lease. Or if you’ve had the property as an investment the whole time, the report will begin from Settlement Date.