With the end of financial year just weeks away, now is the perfect time to remind investors to organise a tax depreciation schedule for their investment properties.
A tax depreciation schedule is a document which helps a property investor’s Accountant to process their claim for the depreciation of a building structure and the assets contained within the property.
The Australian Taxation Office (ATO) requires investors to report any income earned from an investment property as part of their annual income tax return. As part of this process, the ATO allows investment property owners to claim deductions for the wear and tear which occurs to the building structure and its fixtures over time. This claim is called depreciation.
Unlike other expenses an investor can claim, depreciation is a non-cash deduction. This means an investor doesn’t necessarily need to spend any money to be eligible to claim it. For this reason, many property investors are unaware they are eligible and some assume claiming depreciation is not worthwhile. Property professionals should encourage their clients to seek expert advice to discover the depreciation deductions they can claim for any income producing property.
Another reason investors fail to claim depreciation is because they assume that their Accountant will look after all of the deductions they can claim for their property. However, when it comes to depreciation claims, this requires the expert advice of a specialist Quantity Surveyor. The ATO recognise Quantity Surveyors under Tax Ruling 97/25 as one of a selected group of professionals with the knowledge necessary to estimate construction costs for depreciation purposes.
A Quantity Surveyor will perform a detailed site inspection to take measurements, notes and photograph each of the assets an investment property contains. They will also liaise with relevant authorities such as local councils to gather the information necessary to complete the comprehensive tax depreciation schedule for the owner.
A depreciation schedule will provide information for the two types of deductions an investor can claim, the capital works deductions for the building structure and the depreciation of plant and equipment assets. It will also outline the deductions using both the prime cost and the diminishing value method. The investor can speak with their Accountant for further advice on which method best suits their individual investment strategy.
Property professionals should also make their investor clients aware of some important details regarding depreciation legislation. There are some key dates and factors investors need to be aware of from the recent 2017 Federal Budget annoucement:
- Legislation states that income producing properties owners can only claim the capital works component for residential properties in which construction commenced after the 15th of September 1987
- Investors may be eligible to claim structural renovations for work completed within the legislated dates
- Under proposed changes to legislation, investors who exchange contracts on a second hand residential property after 7:30pm on 9th of May 2017 will no longer be able to claim depreciation on plant and equipment assets. Investors who purchase a new property will be able to claim these items as they were previously. We are currently speaking with government to further understand the intricacies relating to the proposed changes
- The proposed changes to plant and equipment depreciation which are yet to legislated will not affect anyone who exchanged contracts on a residential prior to 7:30pm on 9th of May 2017
Given the changes proposed to the depreciation of plant and equipment assets announced in the budget, it is more important than ever for property professionals to advise their clients to ask questions and seek further advice from a Quantity Surveyor to discuss their potential claims.
Property professionals and their clients who would like more information can speak with one of the expert staff at BMT Tax Depreciation on 1300 728 726.
Article provided by BMT Tax Depreciation.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation.
Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia-wide service.