Cutting your tax bill with depreciation

June the 30th is rapidly approaching, which means it’s almost tax time! Like all property investors, no doubt you want to maximise your investment. Common tax deductions and allowances are invaluable, although a lot of people don’t count property depreciation among them. We admit, it’s an area that is misunderstood (if not a little confusing), but if you get a handle on it the deductions could run into the thousands of dollars.

What is property depreciation?
As your investment property and the items within it get older, their value depreciates. As the owner of a property that is bringing in an income, you are allowed to claim a rental and investment property depreciation deduction. This deduction essentially reduces your taxable income, which means you will pay less tax.

Purchased your property a few years ago? You can still make a claim.
Your accountant can amend previous tax returns up to two years back to reflect depreciation deductions.

Your first step
First things first, you need to get a property depreciation schedule done. This will need to be performed by a qualified Quantity Surveyor. The Surveyor will come out to the property, make notes and take photographs of all depreciable items.

How much does it cost?
The cost to prepare the schedule will vary based on the property (size and location are two factors) but it is worth noting that Quantity Surveyor fees are 100% tax deductible.

Here are a few things to keep in mind:

  1. Any home built after 18 July 1985 is eligible to claim deductions on both capital costs, and plant and equipment. If your home was built prior to this date you can only claim on plant and equipment.
  2. Depreciation on plant and equipment (such as carpets, blinds, hot water systems), fixtures and fittings is calculated by the ATO effective life determination. You can find out more information about the effective life of an asset in the ATO’s Guide for Rental Properties.
  3. You can claim on renovations even if the previous owner completed them.
  4. Make sure you seek expert advice from qualified professionals.

Do you have any questions about your depreciation or tax-time preparation? Let us know how we can help.