Question: I know that depreciation doesn’t apply to properties built before 1985, but what about renovations that have been done since then? If I install a new kitchen for example, can I start claiming depreciation on that because it was installed after 1985? What about new curtains, carpets etc.? Any help would be much appreciated.
Answer: I assume that you are referring to the depreciation of the building (otherwise known as a capital works deduction). If this is the case, you are correct – generally buildings built before 18th July 1985 are not entitled to this deduction.
However, provided a property is used for rental or otherwise income producing purposes, a capital works deduction can be claimed for the construction costs of the building if the construction started on or after 18 July 1985. Additionally, a capital works deduction can be claimed for the cost of structural improvements on or after 27 February 1992. Structural improvements would include the installation of a new kitchen.
On the other hand, decline in value (depreciation) can be claimed for all other assets used in the rental property. They would include items like curtains, carpets, furniture and electrical appliances. Such items generally would not form part of the building itself, retaining its own distinct separate identity to the building.
The annual rate of depreciation is based on the effective life of the asset and differs from one asset type to another. Every year the Australian Taxation Office publishes a guide to depreciating assets that contains suggested effective lives for rental property assets. A quantity surveyor would be able to assist in determining the depreciation value of the assets and their depreciation rate.
- Answer provided by Dom Cosentino, Kennedy & Co Chartered Accountants