If you’re a property investor and haven’t claimed depreciation on your rental, you could be missing out on thousands of dollars. The good news? It’s not too late to fix it. Many investors don’t realise that you can backdate your depreciation claims — and doing so could turn your cash flow around faster than you think.
In this guide, we’ll break down what property depreciation is, how backdating works, and why working with a Quantity Surveyor could be the secret weapon your investment portfolio’s been missing.
Property depreciation is one of the largest tax deductions for homeowners in Australia. But did you know that you can backdate your property’s depreciation? Doing so could save you thousands of dollars every year.
As an investor, you need to take advantage of all the tax deductions Australia has to offer. Property depreciation deductions allow you to control your cash flow from your property. As a result, you can use them to enhance your property’s profitability.
Many who own an investment property in Australia claim depreciation yearly.
Unfortunately, some overlook these deductions entirely. Happily, you can backdate your depreciation claims. Firstly, let’s look at what property depreciation means.
What is Property Depreciation?
So, what counts as depreciation for your investment property in Australia?
You can claim for any loss of value resulting from the wear and tear of the property as it ages. Capital allowances for rental properties are the building’s structural elements, and you can claim for all of them, including the roof tiles and the concrete used throughout the building.
You may also be eligible to claim depreciation on the wear and tear of plant and equipment assets within the property—such as carpets, ceiling fans, and other fixtures. However, under legislation changes introduced in the 2017 Federal Budget, these deductions are generally only available if you purchased the property before May 9, 2017, or if the assets are brand new.
Claiming your property’s depreciation is one of the most effective tax deductions in Australia. It allows you to reduce your yearly taxable income, which means your tax bill also decreases. When used correctly, depreciation allows you to take home more money each year.
Behind the deductions you claim for interest expenses, depreciation is one of the largest tax deductions in Australia. However, many investors fail to claim for all their property depreciation. Some even forget about it entirely, which could result in the loss of thousands of dollars over the lifetime of your investment.
Using Backdating to Claim Depreciation
So, what can you do if you haven’t claimed all of the depreciation you’re entitled to? This is where backdating can help you.
There are two key steps you must take to backdate depreciation properly:
- Work with a quantity surveyor to create a full depreciation schedule for your property. Your surveyor will inform you about every item you can make a claim for. They will also discuss rental property depreciation rates with you.
- Bring the surveyor’s depreciation schedule to your accountant. He or she will alter your tax returns so that you claim for all of the depreciation you’re entitled to.
In most cases, you can only backdate depreciation for two years.
What is a Tax Depreciation Schedule?
If you’ve never claimed for your property’s depreciation, you may not know what a tax depreciation schedule is.
The schedule your Quantity Surveyor creates offers a summary of every item in your property that depreciates in value. Think of it as an investment property tax deductions calculator focused solely on depreciation. The schedule notes every item and informs you of how much you can claim for each over the course of the next 40 years.
As noted, your accountant can use this schedule to backdate your tax returns for the previous two years. However, they will also use it to help them to complete your future tax returns. This ensures you claim properly for all future depreciation of your property’s capital works and equipment.
Can I Backdate for More Than Two Years?
In most cases, you can’t backdate your tax returns for over two years. The Australian Taxation Office (ATO) has strict guidelines in place. These usually prevent you from exceeding the two-year limit.
However, that isn’t to say it is impossible. The ATO has different rules for companies than it does for individual investors. There are also different rules for those using a self-managed superannuation fund (SMSF), or a trust.
As a result, it’s worth speaking to your accountant to find out if your situation allows you to backdate for more than two years. It’s unlikely, but you may strike it lucky and be able to claim for even more depreciation than you expected.
Is Backdating Worth It?
Yes, it is. If you don’t account for your investment property depreciation, you could lose out on thousands of dollars every year. In fact, claiming for depreciation can turn a negatively geared property into a positive one.
On top of that, you can also claim the cost of your Quantity Surveyor as a tax deduction.
The Final Word
That’s everything you need to know about backdating depreciation. Speak to your accountant today to find out how far you can backdate your claims.
Washington Brown is here to help if you need a quality Quantity Surveyor. Contact us today to get a full depreciation schedule for your investment property.
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