What Depreciation is available for my investment?

There are two allowances that can be claimed:

1. Capital Allowances - (Division 40 ITAA 1997) Capital Allowances are available to owners of plant in both new and second-hand investment properties. Income Tax Ruling TR 2008/4 lists assets that are depreciable including carpets, fire services, air conditioning units, lifts and white goods etc. This is generally updated every 6 months. Depending on the property’s specifications, furnishings and sale contract conditions, owners may be eligible to claim between 5%-25% of the property’s cost as depreciating assets (plant and equipment).
2. Deductions for capital works - (Division 43 ITAA 1997) Income producing buildings can be eligible for building allowances, provided construction commenced after 20 July 1982 for commercial buildings, after 17 July 1985 for residential properties, or in the case of short term travellers accommodation after 20 August 1979. The rate of write-off is either 2.5% p.a. or 4%p.a. dependant upon the date the construction or refurbishment commenced, excluding the cost of all depreciating assets (plant and equipment) and non eligible items (e.g. land).
3. Additional claims such as renovations, extensions, fit outs, repairs, environmental protection activities and write-off of demolished works can provide additional opportunities for the investor to increase the deductions and return on their property.

When should I obtain a Depreciation schedule?

As soon as possible after settlement or when construction works are completed.

Can my accountant prepare a depreciation schedule?

To prepare a deprecation schedule accurately and to maximise your deductions you need a specialist. An accountant is not normally a specialist in construction cost assessment.

How much?

The cost does vary depending on the size, type and location of each property. You can obtain a quote by contacting George Smit. All fees paid for preparing depreciation schedules are fully tax deductible.

Do you inspect the property?

Yes. I am a qualified and experienced Quantity Surveyor, B.Sc.QS., 55 years old , and I have been preparing depreciation schedules for the last 13 years. I will carry out a detailed inspection of your investment. I love to find that something extra, that I have found almost every property has. I work for the investor not the ATO.

Can I claim any depreciation on my 40 year old property?

Yes. If your property was built before 20 July 1982 for commercial buildings, before 17 July 1985 for residential properties, or in the case of short term travellers' accommodation before 20 August 1979, you would not be eligible to claim the deductions for capital works (Division 43 ITAA 1997) You will, however, still be eligible to claim the depreciating assets (plant) and these are not dependant on the age of the property.

Common myths?

"I have been given a depreciation schedule by the previous owner and should use this" - No, do not use this unless the contract of sale ties you to these values."

"My accountant will prepare my depreciation schedule" – Do you really believe him to be a construction cost specialist?

What is the "cost to the taxpayer method"? Does it increase my deductions?

Yes, it does increase your deductions for Division 40 (aka Plant and Articles). It is also known as the "top down method".

Without going into more detail than absolutely necessary, it is based on the principle of the cost paid for an item of plant by the taxpayer ie. a fair apportionment of the purchase price to every item of plant.

The principle can best be summed up by the example of two identical cars one sold for $29,000 and another for $31,500. What amount are they depreciated at? At their purchase price. Now say that the ATO allowed you to claim a higher rate for say tyres or the motor. Then the car costing $31,500 would have paid proportionally more for the tyres or motor etc. It does require a fair bit of additional calculations, but the results can be spectacular.

What is the "cost in place method" then?

Aka "the bottom up method". It’s a very conservative simple calculation of adding the cost of an item of plant to transport and installation. Avoid any QS whose tells you that this is how he calculates the cost of Plant.

What about Professional fees, Council fees, and Preliminaries?

The tax law allows professional fees, council fees ( except for headworks charges) to be pro-rated to all items of plant and articles. I do and again avoid any QS who says he does not.

What area do you operate in?

The normal answer to that is as far North as Noosa, South to Bryon Bay and West to Toowoomba, but for someone who is prepared to take photos, I can do work anywhere. Email or call to discuss . Alternatively we handle depreciation Australia wide through AAA Online Property Depreciation Services.

Do your reports show our full forty year claim?

Now this is one of the biggest con jobs of all times by those who can only produce quantity no quality. We don't do a forty year estimate on our summary page as it would be meaningless. There are two reasons for this:-

1. Things change, including tax laws during the course of even a ten year period. Any capital expenditure, including replacement of items of plant such as carpets etc will change the results of your depreciation claim and render this appendix meaningless. The reason we use a ten year appendix is this is the average effective life of plant as determined by the ATO.
2. Summary page is not to be used for your tax return. You have to claim based on the opening balance of the particular item of plant eg carpet at the % rate I have given. You then deduct that amount from the opening balance to arrive at the closing balance. You will also claim the Qualifying Capital Expenditure (also known as special building write-off ) included in my report. Your accountant will do the above as well as any post purchase expenditure you may be entitled to claim.