With tax time just around the corner, it is essential to make yourself aware of the tax depreciation benefits you are entitled to.
Blogger: Paul Bennion, managing director, DEPPRO
1.What is tax depreciation?
Tax depreciation on a residential property is a deduction against assessable income, allowing the owner to reduce the amount of taxation payable.
An investor is able to claim for two distinct types of depreciation on buildings. The first is capital allowance, which is a deduction based on the historical construction costs of the property and may include surveying, engineering, architectural and building fees. The second is plant and equipment, which includes items such as floor coverings, window treatments and fixed equipment, e.g. ovens.
2. How much tax depreciation can I claim?
Most investors do not realise that tax benefits obtained through depreciation can be equivalent to 60 per cent of the total purchase price of the property.
For a new apartment in a capital city, for example, this can equate to over $300,000 in possible tax benefits through depreciation.
3. How do I claim these benefits?
You should engage the services of a tax depreciation company, who will undertake an inspection of your property and provide you with an ATO-compliant tax depreciation schedule to give to your accountant. This report is a one-off, and outlines the amount of tax benefits you can claim.
Ensure that the tax depreciation company is a member of the Australian Institute of Quantity Surveyors (AIQS).
4. How much does a schedule cost?
Typically, it should cost around $600. This cost is tax-deductible. It is a small investment considering the large amount of tax depreciation benefits you can obtain, especially if you own a new or nearly new property.
5. What if I have owned an investment property for several years and have not claimed my full tax depreciation benefits?
DEPPRO estimates that only one in five residential investors makes use of the tax depreciation entitlements that are available to all investors on all investment properties.
Many property investors who have owned their properties for several years and have not undertaken tax depreciation schedules still have the potential to claim back thousands of dollars in tax depreciation benefits.
A depreciation schedule can be undertaken at any time by a property investor. If you have owned a property for a number of years, you can still undertake a depreciation schedule and file an adjusted tax return to enable you to obtain unclaimed tax depreciation benefits.