How to maximise depreciation for investment property

What is property tax depreciation and what benefit does it have for the investor or homeowner?

As a building gets older, items wear out, they depreciate. The Australian Taxation Office (ATO) allows property owners to claim this depreciation as a deduction. Depreciation can be claimed by any property owner who obtains income from their property.

Depreciation is not available to be claimed on a primary place of residence simply because it is not income producing. Research shows that 80% of property investors are failing to take advantage of property depreciation and are missing out on thousands of dollars in their pockets.

What is a quantity surveyor and why do I need to use one?

Traditionally a quantity surveyor’s role is to measure buildings and estimate construction costs based on plans and specifications in order to determine how much it would cost to build the property in the current market at the specified location.

Quantity surveyors are one of the few professionals recognised by the ATO to have the appropriate construction costing skills to calculate the cost of items for the purposes of depreciation.

A quantity surveyor’s skills and knowledge of the legislation allows them to find the maximum depreciation deductions available for an investor.

What are your favourite tips for property tax depreciation?

One of the most common questions that we hear is ‘doesn’t my accountant take care of this’? We work alongside your accountant by providing them with a detailed depreciation schedule outlining all of the deductions available on your investment property. Your accountant then uses this depreciation schedule when preparing your tax return.

Many people believe that older properties will have no depreciation left. While an older property will not have as much depreciation available as a new property, there are often still valuable deductions available to be claimed. Many times there will have been updates and renovations completed on the property by a previous owner which can be claimed as a deduction by the current owner. It is always worth contacting a quantity surveyor for a free assessment to determine if depreciation is available on your property.

We’ve found that about 80% of investors are not maximising their depreciation deductions. If you haven’t been claiming or maximising your depreciation deductions, the ATO allows you to go back and amend two previous tax returns to reclaim the dollars you have been missing out on.

When planning a renovation, don’t forget to take into account the depreciation deductions which may be available to claim on the existing assets being replaced within the property. When items are removed from a property or ‘scrapped’, the ATO will allow you to claim the remaining depreciable value left as a deduction. It is important to have a quantity surveyor complete an inspection of the property prior to the renovations starting in order to document all items prior to their removal. Once the renovations have been completed, the quantity surveyor is then able to complete a second inspection to determine the depreciation deductions that are available for all new items within the property as well as determining which assets were removed and had depreciable value left to be claimed.

One of the most important tips I can offer is to get in a qualified quantity surveyor for your depreciation schedule. Although there are many low cost DIY options on the market, these often end up costing you more in missed deductions than you would have saved in the original cost of the schedule. It’s also important to remember that the fee for the completion of a depreciation schedule is 100% tax deductible so it won’t end up costing you a cent in the long run anyway.

How much does a depreciation schedule cost?

For standard residential properties or units, the fee to have a tax depreciation schedule completed is generally $770 including GST. This includes the property inspection completed by one of our qualified staff and the 40 year depreciation schedule which will last the life of the property.

With every enquiry that we get, we always ask a couple of questions about your property to ensure that getting a depreciation schedule completed is going to be worthwhile. If we don’t find at least twice our fee in deductions within the first full year we will not charge for our services.