Tax Depreciation Schedules

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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.

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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.

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What can you expect?

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: 

 

  • A full inspection of your investment property to identify all depreciable items
  • A historical construction cost estimate of the capital works allowances – building and structural improvements
  • Valuation of all plant and equipment items
  • Preparation of a report which is accepted by the ATO and summarises the depreciation allowances for future years

Capital works deductions

Capital works deductions are income tax deductions that can be claimed for expenses such as:

 

  • Building construction costs
  • The cost of altering a building
  • The cost of capital improvements to the surrounding property i.e. external improvements (fences, driveways, retaining walls etc.)

 

Capital works costs are deducted over 40 years.

 

Fixed plant and equipment

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:

 

  • The property you purchased is new and you have not lived in it
  • If you have purchased plant and equipment items to be installed in the property and you have not used them for personal use
  • A company owns the property (not a SMSF or a Family Trust)

 

For properties purchased before 9 May 2017, you are able to claim plant and equipment depreciation if:

 

  • The property you purchased was used as a rental property some time during the 2016/2017 financial year
  • If you have purchased plant and equipment items to be installed in the property and you have not used them for personal use
  • A company owns the property (not a SMSF or a Family Trust)

 

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.

FREQUENTLY ASKED QUESTIONS

Why do I need a tax depreciation schedule?

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.

What is the principle behind Property Depreciation?

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.

What are the main components of a Tax Depreciation Schedule?

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.)

When can Depreciation Allowance be claimed?

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.

Am I entitled to claim deduction on any items in Unit common areas?

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.

What is involved in preparing a tax depreciation schedule?

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.

Are your fees fully tax deductible?

Yes.

What Can I Claim?

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.

Who can claim Depreciation?

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.

If my property was built before 1981, is it too old?

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.

How do you work out how old the building is?

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.

Can I claim renovations done by the previous owner?

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.

What information do I need to provide?

Information we require to produce a Tax Depreciation Schedule includes the following:

  • Your settlement date AND purchase price
  • Any information pertaining to improvements or additions made to the property, including dates and costs where available
  • The date the property became income producing. (Tenancy date)
  • Floor Plans if available

Can I backdate my depreciation deduction claim?

Yes, a depreciation report can be prepared to allow an individual to easily recover missing depreciation benefits up to a period of 4 years.

How is claiming depreciation on my rental property be beneficial to my investment?

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.

How do we differentiate between repair works and capital works to my investment?

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.

I’ve owned the property for a few years now and never claimed depreciation.

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.

Contact your local TDS expert

If you have any questions, please do not hesitate to get in touch.

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Herron Todd White

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