Renovating? Cash in on the residual value write off allowance.
If you are planning on renovating your investment property, before you talk to an architect, interior designer or builder first call in your quantity surveyor. Property investors are missing out on thousands in legitimate tax deductions because they are not claiming the residual write off allowance on items before they renovate.
Residual write off allowance explained
As long as your property was built after 1985, the residual value allowance relates to capital works deductions on a property you are about to renovate.
It is specific to capital works items, which are depreciated at a rate of 2.5% per annum based upon the original cost over 40 years. Items such as bricks, windows, kichen cupboards, tiling, shower screens, balustrades, light fixturees and taps fall into this category.
If you are planning on renovating your property, before you demolish any capital works items where the original cost is unknown get your quantity surveyor in to assess the residual value.
Case study example
John has bought an investment property built in 1998. The original kitchen and bathroom are in desperate need of a makeover to meet market expectations.
Without an independent estimate by a qualified quantity surveyor, John's tax deduction in regards to this renovation would be zero. Here are the potential deductions he is missing out on.
| Original Item Installed 1988 | Estimated Original Value when installed | Value left when demolished (20yrs @ 2.5%) = ½ value left |
|---|---|---|
| IMMEDIATE DEDUCTION | $15,580 | |
| Kitchen Cupboards | $16,000 | $8000 |
| Kitchen Wall Tiles | $2,500 | $1250 |
| Kitchen Plumbing | $1,700 | $850 |
| Kitchen Electrical | $1,060 | $530 |
| Shower Screen | $1,500 | $750 |
| Vanity | $1,300 | $650 |
| Bathroom Tiling | $4,400 | $2,200 |
| Bathroom Ceilings | $2,700 | $1350 |
Some key facts about the case study
- When John finishes his new kitchen and bathroom he can start claiming depreciation on those items at 2.5% again.
- John demolished these items voluntarily and was still able to claim the amounts in full.
- The property was built after 1985 - that's the year the ATO allowed investors to claim the building allowance.
Need more information?
Email us or talk to one on our quantity surveyors on 1300 99 06 12 about renovation plans for your property.
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