Claiming depreciation is one of the most important steps in an investor’s journey. Here’s my Top 5 Tax Depreciation tips to maximise the return on your investment property.
Number 1: Use an Experienced Quantity Surveyor
You’ve just paid hundreds of thousands of dollars for a property. Do you really want to risk missing out on tens of thousands of dollars in deductions just to save a couple of hundred tax deductible dollars on the ONLY tax break available to you that can be open to interpretation and skill?
The ATO has identified quantity surveyors such as Washington Brown as appropriately qualified to estimate the original construction costs in cases where that figure is unknown. The laws have also changed frequently over the years and each building is unique, so it pays to get expert advice. The ATO requires all companies who prepare Tax Depreciation Schedules to be registered Tax Agents.
Number 2: Claiming the Residual Value Write Off
I believe millions of dollars will be missed over the coming years in tax depreciation claims due to changes in what can be defined as ‘plant and equipment’.
If you are renovating a kitchen or bathroom in a property built after 1985 – get a quantity surveyor in before you demolish so they can assess what the residual value of the existing items are. This residual value can be claimed as an outright deduction and can generate huge savings in the first year (The plant and equipment component of this may now be considered a capital loss rather than deduction from your personal income taxes due to recent Budget changes).
For instance, a rental property with a 20 year-old kitchen could possibly attract an immediate deduction of around $5,000 if removed.
The added bonus is that you get to claim depreciation on the new work once it is complete too!
Number 3: Small Items and Low Value Pooling
(NOTE: Deductions for these plant and equipment items may only apply if you bought the property prior to May 9, 2017 – Read about the Budget changes here).
A dollar today is worth more than a dollar tomorrow so deduct items as quickly as possible.
Individual items under $300 can be written off immediately. An important thing to remember here is that provided your portion is under $300 you can still write it off.
For instance, say an electric motor to the garage door cost an apartment block $2000. If there are 50 units in the block, your portion is $40. You can claim that $40 outright – as your portion is under $300. You can also try to buy items that depreciate faster such as purchasing a microwave that costs $295 as opposed to one that costs $320.
Items between $300 and $1000 fall into the Low Pool Category and attract a higher depreciation rate. So for instance, a $1200 television attracts a 20% deduction whilst a $950 television deducts at 37.5% per annum.
Number 4: Old Properties Depreciate too
Even properties built before 1985 (when the building allowance kicked in) are worth depreciating.
The purchase price of your property includes the Land, Building and the Plant and Equipment. As a quantity surveyor we help you apportion or break down the purchase price into those categories.
In about 99% of cases we find enough plant and equipment items to justify the expense of engaging our firm (for ‘Pre-Budget’ properties). At Washington Brown we guarantee to save you twice the fee of engagement or your report will be free!
Number 5: Use the Washington Brown Tax Depreciation Calculator
The saying goes “if only I knew then what I know now!” When it comes to depreciation, you can. Investors can use our website, free of charge, and get an instant estimate of the likely tax depreciation deductions on a property before they buy it.
This calculator uses real life data collated from every inspection we do on behalf of our clients. So the data gets more accurate with time.
For more information on depreciation or to discuss your specific investment property, call us on 1300 990 612 or email email@example.com. Tyron Hyde is a director of Washington Brown – The Property Depreciation Experts. He has a degree in construction economics and is an associate of the Australian Institute of Quantity Surveyors.