If you don’t have a tax depreciation schedule for your investment property, you could be missing out on thousands of dollars each year in allowable depreciation.
Herron Todd White is ideally placed to provide an independent Tax Depreciation Schedule to ensure you have all the tools to maximise your return on your investment property.
A Tax Depreciation Schedule is an essential tool for all residential property investors, commercial property owners and rural producers looking to maximise the benefits of owning an income-generating property.
The Income Tax Assessment Act 1997 allows owners of investment properties to claim annual deductions for depreciation items like main building and structural improvements. Inspections are carried out on all properties and reports are prepared by qualified Quantity Surveyors and cover all property types — residential, commercial, industrial, strata, rural.
Once you have successfully submitted a quote request, one of our friendly team members will provide a quote for your approval. You can expect to receive this via email within one business day.
Upon receipt of your approval and full payment, we will begin preparing a file and contact the nominated person for access to arrange a convenient time for the inspection.
Following the inspection, we will complete your written report and forward it to you. If at any stage during this process, you have any concerns or further queries, please contact your local office to discuss.
A Tax Depreciation Schedule (TDS) has two components; Capital works deductions and plant and equipment depreciation. Our inspections are carried out on all properties and reports are prepared by trained and qualified quantity surveyors who are also registered tax agents with the Tax Practitioners Board.
A tax depreciation schedule involves:
Capital works deductions are income tax deductions that can be claimed for expenses such as:
Capital works costs are deducted over 40 years.
Plant and equipment items for residential and commercial properties are items that can be easily removed including (but not limited to) carpets, hot water systems and air-conditioners, as opposed to items that are permanently fixed to the structure of the building. Plant items include mechanically or electronically operated assets, even though they may be fixed to the structure of the building.
These items are affected by the Federal Budget 2017 changes. These changes have been passed in parliament and fall under the Treasury Laws Amendment (Housing Tax Integrity) Bill 2017. For residential property investors, plant and equipment depreciation deductions will be limited to the following:
For properties purchased post 9 May 2017, you are able to claim plant and equipment depreciation if:
For properties purchased before 9 May 2017, you are able to claim plant and equipment depreciation if:
Commercial, industrial and rural properties are not affected by the Federal Budget 2017 changes to property depreciation.
Rural property owners can depreciate items including (but not limited to), buildings, sheds, yards, silos, horticultural plants etc. Fencing, water infrastructure and fodder storages are no longer claimable for properties purchased after 12 May 2015. Properties purchased prior to this date can still make these claims.
If you own an income producing property (rental property or business related) then you should obtain a tax depreciation schedule if you wish to claim depreciation allowances. Schedules are prepared by qualified Quantity Survey professionals to not only ensure that all possible deductions are identified but also that ATO governing laws and requirements are met.
To compensate taxpayers for the reduction in value of items used in the production of taxable income; assessed as building works, plant & equipment, and structural improvements.
1. Building — Capital Works (Division 43) (the bricks & mortar, this is the actual main
structure)
2. Structural Improvements (Division 43) (this refers to external works such as pool, fencing,
paving etc.)
3. Plant & Equipment (Division 40) (Typical P&E items for a residential development include carpets, curtains, air conditioners etc.)
Tax Depreciation can be claimed once a property becomes income producing, ie deriving an income from tenancy or business related income. Depreciation allowances are bound by ATO tax rulings and legislation, with specific key dates playing a significant part in the preparation of a tax depreciation schedule. Reference to the
Australian Taxation Office legislation and tax rulings for depreciation is governed by the Income Tax Assessment Act 1997.
Yes, depreciation allowances for common areas are apportioned according to unit entitlement. A full inspection of the strata complex common areas will occur in addition to your individual unit inspection. Depreciable items in common areas include but not limited to Fire Hose Reels, Fire Extinguisher, Smoke Detection & Alarm System, Hydrant Pump, Car parking, Pool/Spa Equipment, Gym Fitout and Equipment, etc.
A detailed site inspection of your property will be completed to identify all of the depreciable items. From there our Quantity Surveyor will prepare a schedule which sets out the maximum depreciation allowances for the Building, Structural Improvements and Plant & Equipment, including items such as floor coverings, kitchen appliances, hot water service etc. This information is incorporated into a full report which sets out the allowances for future years which you can then simply pass on to your accountant for preparation of your tax return.
Yes.
Our tax depreciation schedules are split into two sections:
Capital Works Allowance – Capital works are those building elements that are integral to the building structure i.e. walls, floors, roofs etc. Residential investment properties constructed after 19th July 1985 are eligible to claim 2.5% or 4% of the original construction cost depending on the date the property was constructed.
Decline in Value of Plant and Equipment – Articles of plant and equipment can be deducted at an increased rate compared to the capital works allowance. There are many items identified by the ATO which can be categorised as plant and equipment. For example carpet, curtains, whitegoods, air- conditioners etc are all considered to be plant and equipment (Note: This list is not exhaustive).
The ATO stipulates that “an appropriately qualified person” (TR 97/25) must be engaged to calculate original building costs if accurate original costs are unavailable. As Quantity Surveyors and Registered Tax Agents, HTW are appropriately qualified as outlined by the ATO to compile tax depreciation schedules.
Depreciation may be claimed on any property, either new or old. To claim depreciation allowance, the following conditions must be satisfied:
The property must be owned by the taxpayer. The property must be used for the purpose of producing assessable income, or be ready for use for that purpose.
No. All properties are entitled to some form of depreciation regardless of age.
The investment property does not have to be new: Both new and old properties will attract some depreciation deductions. All fixtures and fittings are claimable. Also, any renovation or improvement carried out after 27/2/1992 is entitled to some form of depreciation and capital works deductions respectively. You can also adjust previous year’s tax returns: When a property owner has not been claiming or maximising tax depreciation deductions, currently up to the previous two financial year’s tax returns can be adjusted and amended.
The age of the building can be determined by obtaining council documents with dates pertaining to the original application approval date or the Occupancy Certificate date, and final inspection date.
Yes. Anything in the property that is part of a previous renovation will be estimated by our quantity surveyors and depreciated accordingly. For capital improvements to qualify for the Division 43 construction write off allowance, they must be completed after 27/2/1992.
Information we require to produce a Tax Depreciation Schedule includes the following:
Yes, a depreciation report can be prepared to allow an individual to easily recover missing depreciation benefits up to a period of 4 years.
Claiming depreciation allowance offsets your total taxable income, and reduces the tax you have to pay in today’s dollars. This will “free up” your cash flow and enable you to repay your mortgage or debt in a shorter duration.
The distinction is between repairs and improvement. Improvement is dealt as capital works, whereas repairs are dealt with as a normal outgoing expense. All maintenance or repair works carried out during the leasing period need to be examined on a case by case basis by our Surveyor i.e. if the works are of repairs or improvement nature.
All figures are calculated from settlement date and you can do an adjustment up to 4 years past. So you may be able to claim up to 4 years of depreciation in this financial year.
If you have any questions, please do not hesitate to get in touch.
