It’s normal for properties and the assets contained within them to go through a gradual process of wear and tear. Property investors are permitted by the Australian Tax Office (ATO) to claim tax deductions based on this deterioration. This process is called property depreciation.
Depreciation can be claimed for any income producing property and is a non-cash deduction, meaning that you do not have to spend any money to make a claim.
Property investors are entitled to claim two types of property depreciation:
- Capital Works Allowance (Division 43) is available for deductions on the structural elements of a building such as roofing, windows and doors. It is commonly referred to as ‘building write off’, and can be claimed against the building’s historical construction cost at a rate of 2.5% each year for up to 40 years.
- Plant and Equipment Deductions are available for mechanical or removable assets. This includes common items such as carpets, hot water systems, blinds and light fittings. Each of these deductions is calculated using the effective life of the various assets (generally 5 to 10 years). A dishwasher, for example, may be allocated an effective life of 10 years and will be depreciated at 20% per year (under the diminishing method value of depreciation).
NOTE:While Capital Works Allowance deductions can be claimed up to 40 years after construction, this only applies to buildings constructed after 17 July 1985. Owners of older buildings are eligible to claim depreciation deductions based on plant and equipment items only.
When Capital Works Allowance and Plant and Equipment Deductions are claimed together, the combined deductions can produce a significant improvement to your cash flow. Research shows that a standard residential property can expect $5,000 to $10,000 in deductions on average in their first year’s claim alone.
Are you missing out on what you are entitled to?
Despite the thousands of dollars of potential cash flow property depreciation offers, an astonishing 80% of property investors fail to make depreciation claims on their investment properties.
In order to start claiming the maximum available depreciation deductions, a quality depreciation schedule is needed. Quantity Surveyors are one of the few professions recognised by the ATO as qualified to provide these depreciation schedules to property investors.
We recommend BMT Tax Depreciation. Their team of Quantity Surveyors have the skills and knowledge to help ensure you are claiming every dollar in depreciation deductions you are entitled to. Contact BMT on 1300 728 726 or visit www.bmtqs.com.au