Many Australians who own investment property have recently had their accountant process their income tax return. Of these investors, the majority are unaware of how capital gains tax will affect them and what they can claim in relation to property depreciation.
The ATO requires investors to report any capital gain or loss as part of their income tax return. One of the most common ways to make a capital gain, or capital loss is through the purchase or sale of assets including real estate that is being used for investment purposes.
Claiming depreciation on an investment property can make a huge difference to an investor’s cash flow. Many investors often miss claiming depreciation on their investment property as you do not need to spend money for it to be claimed.
As a property gets older, items within it wear out, or depreciate. The ATO allows investors to claim this depreciation as a tax deduction. Depreciation can be claimed by any property owner who derives income from their property.
Investors often assume that a property must be new to claim depreciation deductions. They are unaware that they can claim depreciation irrespective of the age of the property as deductions relate not only to the structure but also the fixtures and fittings in the property.
Fixtures and fittings such as carpet, hot water systems, blinds and stoves attract deductions.
It is recommended that you consult a specialist quantity surveyor to prepare a depreciation schedule before you lodge your income tax return.
Quantity surveyors are recognised to have the appropriate construction costing skills to estimate the building costs for depreciation and are qualified under tax ruling 97/25.
Your Property Manager can arrange to appoint a quantity surveyor to undertake a tax depreciation schedule for you.