In the wake of COVID-19 many services have moved online or become ‘contactless’ and obtaining a depreciation schedule is no different, with the industry adjusting to reflect the new norms.
Once upon a time every residential investment property had to be inspected by a depreciation expert in order for the maximum tax deductions to be claimed and for property investors to ensure the maximum amount of money went back into their pocket.
If you didn’t have a physical inspection, you were doing yourself a disservice by doing yourself out of money.
But times have changed, and that’s no longer the case.
Legislative changes that came into effect in the middle of 2017 have meant that depreciation schedules for residential properties can now sometimes be prepared without a depreciation expert conducting an in-person inspection.
Why is a physical inspection no longer essential?
The recent changes to tax legislation means that now, different types of properties – ie. brand new versus second hand - are treated differently when it comes to depreciation.
While buyers of brand new properties can still claim depreciation on both Plant & Equipment (think ovens, dishwashers and window coverings) and Building (the structure, so items such as concrete and bricks), investors buying second-hand residential properties after May 10, 2017 containing ‘previously used’ depreciating assets, can now only claim depreciation on the building structure.
Buyers of second-hand properties can only claim depreciation on Plant & Equipment if the items are brand new.
If you buy brand new items in a second-hand property, such as carpet and blinds, you can still claim depreciation, but it must be based on the purchase price (rather than an estimate of the value as it used to be).
So while in the old days, depreciation experts always used to visit investment properties in person to value Plant & Equipment items individually, we no longer always need to.
That means that not every property needs a physical inspection in order for the maximum deduction claim to be achieved.
So how do you know if you need an inspection for your property?
Omitting an inspection will make a depreciation schedule cheaper and the report will be available faster. But it should only be done in certain circumstances.
In some situations, conducting an inspection is still necessary to ensure that the absolute maximum ATO-compliant deductions are achieved.
To make a determination on whether you need an inspection, we research your property thoroughly and will then advise accurately on the best way to achieve maximum depreciation in the most cost-effective way.
But to give you an idea of whether you will need a physical inspection or not, review our checklist below.
5 reasons why some properties DO require a physical inspection:
- Your residential property is unique. Your property is classed as High Spec/Luxury/Non-Standard, and therefore not typical. A physical inspection will ensure nothing is missed in the assessment so you can claim maximum deductions.
- Non-residential – Commercial properties can claim depreciation on both Plant & Equipment and the Building. Getting an inspection means you can still claim the full benefits of depreciation for all plant and equipment items (carpets, blinds, etc.) .
- Renovated - Your property has been substantially renovated and there is insufficient information online, so an inspection is necessary to maximise the depreciation.
- More information required – If there isn’t access to sufficient information specific to your property an onsite assessment will be necessary.
- Plant & Equipment – If your property qualifies for Plant & Equipment deductions, an inspection ensures no assets are missed to maximise your claim.
5 reasons why some properties DO NOT require a physical inspection:
- Existing information is on hand – In 40 years we have amassed an extensive database of construction costs for the majority of residential and commercial buildings around Australia.
- We have the costs – We are familiar with your building and already have the construction costs on file.
- Plant & Equipment no more – You have purchased a second-hand property so you can’t claim on the existing Plant & Equipment components.
- Online data – There is plenty of detailed information and pictures of your specific property available online (both publicly and via subscription-based industry databases).
- You have the costs – Your property is a brand new build and you have access to the construction cost, plans and inclusions list.
Tyron Hyde is the CEO of Washington Brown and is considered one of Australia’s leading experts in property tax depreciation. He is also a registered tax agent. Washington Brown manages construction costs worth over $2 billion and completes 10,000 schedules annually. For a depreciation schedule quote CLICK HERE and follow the 3 simple steps or estimate your depreciation cost.
The Washington Brown Free Depreciation Calculator will give you an estimate of the depreciation deductions you could claim on your investment property
Read more Expert Advice articles by Tyron
Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.