Tax depreciation: Myths & Truths

By Nila Sweeney | 20 Aug 2013
I’ve been in the industry for 22 years, and during this time I have heard some incredible statements about property depreciation. With that in mind, it’s time to clear these up. Here are my top eight myths and truths:
1 MYTH: You can only depreciate new properties 
The truth is that old properties also depreciate, because the purchase price of your property includes the land, building, and plant and equipment. This means that even properties built before 1985 (when the building allowance kicked in) are worth depreciating.
2 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 relates tothe amenities the developer provides. For instance, some high-rise buildings have swimming pools, gyms and even mini cinemas.
3 MYTH:All construction costs are eligible for depreciation
In this country we are fortunate that we can claim the depreciation of an investment property as a tax deduction. However, not all construction costs are eligible. 
When claiming depreciation of a building we are essentially claiming for what is there now. So it stands to reason that the costs, for example, of demolition or site clearing cannot be claimed. In similar fashion,trees and grass grow, so they don’t depreciate over time.
4 MYTH: All depreciation reports are the same
Time and again, we field enquiries from those whohave found companies offering DIY depreciation reports, and for just a few hundred dollars. Well, don’t touch the DIY depreciation options. Only accredited quantity surveyors are trained in estimating building costs. Incorrect measurements  can lead to missed deductions, and poor-quality reports are more likely to attract an ATO audit.
5 TRUTH: Building profit CAN be claimed
If you engage a builder directly to complete your investment property, the profit component of the work can be claimed. However, if you buy from a speculative builder/developer,the profit is not part of the amount you can claim.
6 MYTH:A depreciation report is not worthwhile for a property that is bought near the end of the financial year
In the first financial year of ownership, it is not uncommon for an investor to claim thousands of dollars worth of deductions for a property purchased close to June 30. Why? Well, specific plant items in the property that are valued at under $300 are eligible for an immediate write-off,and those valued at under $1,000 can be low-pooled and written off at an accelerated rate of 18.75% in the first year alone. As neither of these amounts should be pro-rated, they can be claimed in full, regardless of whether the property has been owned for oneday or 365 days.
7 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.
8 MYTH: Accountants can prepare depreciation schedules
Accountants, real estate agents andproperty valuers are notallowed to estimate the cost of construction for properties built after 1985. The ATO has identified quantity surveyors as appropriately qualified to estimate the original construction costs in cases where that figure is unknown.
Tyron Hyde, A AIQS, is director of Washington Brown. For more information,visit

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