Often dismissed and put aside for more interesting topics, property depreciation deductions is a topic your average person will cringe about. But is a topic that if understood can make a big difference to a property owner’s cash flow. The Australian Taxation Office (ATO) allows property owners to claim depreciation, or decline in value, as a deduction. As a non-cash deduction, depreciation is often missed. With tax time approaching, property owners should be sure they are claiming all the deductions to which they are entitled.
Owners of income-producing properties can claim depreciation deductions related to the building’s structure as well as the fixtures and fittings within the property. Depreciation related to a building’s structure can be claimed via capital works deduction. As a general rule, residential properties in which construction commenced after the 18th July 1985 and commercial properties in which construction commenced after 20th July 1982 are eligible for the capital works deductions. Depreciation on each plant and equipment asset contained within a building can also be claimed. Examples of these assets include hot water systems, carpets and blinds.
Generally, newer properties with newer fixtures and more expensive construction costs will attract more depreciation deductions simply because they have not depreciated in value as much as older properties. However, older properties still attract depreciation. It is always worth enquiring about the possible depreciation deductions available on an investment property.
To maximise depreciation deductions, property investors should engage a specialised Quantity Surveyor to complete a tax depreciation schedule. The schedule will show deductions for the life of the property (forty years) and will ensure the property owner claims their depreciation entitlements. The fee for a tax depreciation schedule is a 100% tax deductible and can be claimed straight back this year if ordered by June 30.