With the beginning of each new financial year, it's important to remind investors the benefits of organising a tax depreciation schedule for their investment properties.
The Australian Taxation Office (ATO) requires property investors to report income earned from an investment property as part of their annual income tax return. The ATO also allows investment property owners to claim deductions for the wear and tear which occurs to the building structure and its fixtures over time. This claim is called deprecation. Unlike other expenses an investor can claim, depreciation is a non-cash deduction. This means an investor doesn't need to spend any money to be eligible to claim it.
Research shows 80 per cent of property investors are failing to take full advantage of property depreciation and are missing out on thousands of dollars in their pockets. Another reason investors fail to claim depreciation is because they assume that their accountant will look after all of the deductions they can claim for their property. However, depreciation claims require the expert advice of a specialist quantity surveyor. The ATO recognise quantity surveyors under Tax Ruling 97/25 as one of a selected group of professionals with the knowledge necessary to estimate construction costs for depreciation purposes.
Expert quantity surveyors, like the team at BMT Tax Depreciation, will perform a detailed site inspection to take measurements, notes and photograph each of the assets an investment property contains. They will also liaise with relevant authorities such as local councils to gather the information necessary to complete the comprehensive tax depreciation schedule for the owner.
A depreciation schedule will provide information for the two types of deductions an investor can claim, the 'capital works' deductions for the building structure and the depreciation of 'plant and equipment' assets. It will also outline the deductions using both the prime cost and the diminishing value method. The investor can speak with their accountant for further advice on which method best suits their individual investment strategy.
Investors should also be aware of some important details regarding changes to depreciation legislation. There are some key dates and factors investors need to be
aware of. On 15 November 2017, Parliament passed the Treasury Laws Amendment (Housing Tax Integrity) Bill 2017, which brought about some major changes to 'plant and equipment' depreciation claims. The legislation changes mean that owners of second-hand residential properties (where contracts exchanged after 7:30pm on 9 May 2017) can no longer claim depreciation on existing plant and equipment assets located within their property. However, there are still thousands of dollars to be claimed by Australian property investors, as there has been no change to 'capital works' deductions or building write-offs, which typically make up between 85 to 90 per cent of an investor's total claimable amount.
Investors who have already purchased prior to this date can continue to claim depreciation deductions as before. Given the changes to legislation surrounding the depreciation of plant and equipment assets, it is important to ask questions and seek further advice from a quantity surveyor to discuss potential claims.
ABOUT THE CONTRIBUTOR
Article provided by BMT Tax Depreciation. Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation.
Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia-wide service.