Depreciation: Truths and myths

TRUTH: Taller buildings get higher depreciation

Taller buildings attract higher plant and equipment allowances and the higher the plant and equipment, the higher the depreciation. Some of the services required as buildings increase in height are obvious, such as a lift (transport service). Other services are less obvious, with fire hose reels and intercoms all being depreciable under this category. The other reason tall buildings have a higher ratio of plant and equipment has to do with the amenities the developer provides. For instance, some high-rise buildings have swimming pools, gyms and even mini cinemas.

MYTH: More expensive items get higher depreciation

The truth is that items costing between $300 and $1,000 fall into the Low Pool Category and attract a higher depreciation rate.

TRUTH: You can claim depreciation on renovations before embarking on the project

If you are renovating a kitchen or bathroom on a property built after 1985, get a quantity surveyor in before you demolish so they can assess what the residual value of these items are. That value can still be claimed as an outright deduction and can generate huge savings in the first year. For instance, a rental property with a 20-year-old, $10,000 kitchen attracts an immediate deduction of around $5,000.

MYTH: You can only depreciate new properties

The truth is old properties depreciate too because the purchase price of your property includes the land, building, and plant and equipment. This means even properties built before 1985 (when the building allowance kicked in) are worth depreciating.

TRUTH: Furnishing can boost your depreciation claims

Furnishing your property is another way to increase your depreciation deductions as it attracts higher depreciation rates. For example, a $20,000 furniture package supplied by a developer can result in an additional $10,000 deduction in the first year alone. But remember, furnishing your investment isn’t necessarily the best option for all properties and locations. It’s better suited to smaller one or two bedroom apartments in transient areas that attract short-term tenants and holiday rentals.

MYTH: Accountants can prepare depreciation schedules

The truth is your accountant, real estate agent and property valuer are not qualified to make this assessment in accordance with the ATO. The ATO has identified quantity surveyors as appropriately qualified to estimate the original construction costs in cases where that figure is unknown.

Tyron Hyde is director of Washington Brown and has over 15 years experience in the construction and development industry. Considered one of Australia’s leading experts in property tax depreciation, Tyron regularly presents at industry conferences and events and has published numerous articles on tax depreciation and property investment.

Tyron has a Bachelor in Construction Economics from University of Technology Sydney. 

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