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Basic Tax Depreciation

All types of income producing properties have substantial taxation benefits available to be claimed as a tax credit. As many as 80% of Australian property investors are not maximising their tax depreciation deductions.

Both new and old properties will attract some depreciation benefit that the owner is able to claim as a tax credit. A common myth is that older properties will attract no claim. Therefore it is worth making an enquiry about any property.

As an easy guide, we have put together a table which shows approximate deductions obtainable for various properties. Investors are often amazed at the deductions they are entitled to.

Building
Type
Purchase
Price
Year 1
Depreciation
Year 1-5
Cumulative
Depreciation
1 bdrm Unit $450,000 $10,000 $45,000
2 bdrm Unit $550,000 $13,500 $55,000
3 bdrm Unit $700,000 $15,000 $62,000
Townhouse $500,000 $9,500 $35,000
Townhouse $600,000 $11,500 $40,000
Residential House $500,000 $9,000 $34,000
Residential House $600,000 $11,000 $37,000

What elements make up a capital allowance and tax depreciation report?

When a quantity surveyor completes an investor's capital allowance and tax depreciation schedule, two main elements are taken into consideration:

  • Capital Works Allowance (Division 43) and
  • Plant and Equipment (Division 40).

Capital Works Allowance

The capital works allowance is a deduction available for the structural element of a building including fixed irremovable assets. This is commonly referred to as the ‘building write-off’. Only some properties will qualify for this allowance. Depending on the age of the building you can claim either 2.5% or 4% of its historical construction cost, as the following graph represents:

Capital Allowance Deductions (Division 43) are based on the historical cost of the building, excluding the cost of all ‘plant’ and non-eligible items.

Plant and Equipment Depreciation

The plant and equipment depreciation is a deduction available for removable assets which are identified by the Australian Taxation Office (ATO) as assets which depreciate at a faster rate than the building. Each plant and equipment item has an effective life and the depreciation available on that item is calculated accordingly.

Many plant and equipment items contained within a property are able to be depreciated over their effective life. Some of these items include:

  • hot water service

  • ceiling fans

  • dishwasher

  • carpet

  • blinds

  • exhaust fans

  • washing machines

  • cooktops

  • ovens

  • rangehood

  • smoke alarms

  • air conditioner

  • light shades

  • microwaves

  • floating timber floors

  • microwaves

  • vinyl

  • furniture package

  • clothes dryer

  • freestanding spa

  • curtains

  • security systems

When a property owner has not been claiming deductions for tax depreciation, previous financial years' tax returns can be amended. The Australian Taxation Office (ATO) allows for up to the previous two year returns to be amended, in some instances the ATO may have to pay you money back!

The depreciation potential of an individual building will differ greatly depending on its age, use and original construction cost. The maximisation of a depreciation claim on any building requires a unique combination of construction costing skills and experience combined with an intimate knowledge of the Income Tax Assessment Act 1997.

Quantity Surveyors are recognised by the Australian Tax Office under TR 97/25 as appropriately qualified to estimate construction costs of a building for tax purposes. In addition to this Australian Tax Office requirement, we specialise in maximising depreciation deductions for investment property owners.


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