Over the last year I have been writing about some pretty complex issues in regards to depreciation of property. From Capital Work write-offs, my top ten tips, through to explaining the difference between repairs and capital expenditure.
Well I think its time we got back to basic and took a depreciation refresher course 101.
To help you have a greater understanding of depreciation I have listed the top 10 questions I have been asked by investors over the last 15 years.
1. What is Property Depreciation?
Just like you claim wear and tear on a car purchased for income producing purposes, you can also claim the depreciation of your investment property against your taxable income.
There are two types of allowances available: depreciation on Plant and Equipment, and depreciation on Building Allowance.
Plant and Equipment refers to items within the building . Building Allowance refers to construction costs of the building itself. Both these costs can be offset against your assessable income.
2. So how does a Depreciation Schedule help me?
Simple. A depreciation schedule will help you pay less tax. The amount the depreciation schedule says you claim effectively reduces your taxable income.
3. Is my property too old to claim Property Depreciation?
The simple answer is no. If your residential property was built after July 1985 you will be able to claim both Building Allowance and Plant and Equipment. If construction on your property commenced prior to this date, you can still claim depreciation on Plant and Equipment . Commercial and industrial properties are subject to varying cut off dates.
4. Shouldn't my accountant prepare this report?
If your residential property was built after 1985 your accountant is not allowed to estimate the construction costs.
5. Will you need to inspect my property?
The Australian Institute of Quantity Surveyors (AIQS) Code of Practice stipulates that site inspections are necessary to satisfy ATO requirements.
6. My property is renovated. Can I still claim?
Yes. We will need to know how much you spent on renovations. Even if the previous owner completed the renovations YOU are still entitled to claim depreciation!
7. How much will my Property Depreciation schedule cost?
The cost of preparing a tax depreciation schedule varies according to the type of property you've purchased, location, size and numerous other factors.
Quantity Surveyors fees are 100% tax deductible.
8. How much will I save?
Each property is different and many varying factors must be considered when preparing a property depreciation schedule. Try this free depreciation calculator.
9. How long will it take to complete my schedule?
Your depreciation schedule will take approximately 2-3 weeks to complete, as long as the Quantity Surveyor can inspect your property without delay.
10. I bought my property three years ago. Can I still make a claim?
Yes you can. Your accountant can amend your previous tax returns up to 2 years back. There are some exceptions so please contact your tax agent or the ATO for clarification.
Tyron Hyde is a director of quantity surveying firm Washington Brown. For more QS Corner tips and information on property depreciation including a FREE online tax depreciation calculator, visit www.washingtonbrown.com.au
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Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.