Claim Depreciation on Previous Owners’ Renovations

Claim Depreciation from previous owner

You Can Claim Tax Deductions in Australia for Previous Renovations

When considering tax deductions in Australia, most investors only take their own renovations into account. It does make sense. After all, why should you be eligible to claim deductions on your investment property in Australia if you didn’t pay for the work?

Perhaps surprisingly, you can claim deductions for the previous owner’s renovations. However, there are several things you need to consider. For example, how much you can claim depends on when you purchased the property. The effects of the 2017 Budget play a role here, as what you can claim differs depending on if you made your purchase before or after the budget. Let’s look at what tax deductions in Australia you can claim in both scenarios.

You Bought Before the 2017 Budget

Things are simpler if you bought the property before the 2017 Budget. If this is the case, you can make claims under both Division 43 and Division 40 of the Income Tax Assessment Act (ITAA).

Division 43 relates to any capital works that the previous owner undertook on the property. This includes any renovations, such as the building of some extensions or remodelling a bathroom or kitchen. It also covers any work done to the building’s structure. For example, you’d be able to claim for a new roof or for some of the walls that the previous owner built.

Division 40 relates to the equipment installed in the property. Your investment property in Australia may have an air conditioning unit or some other piece of equipment Depreciation Quote Schedulethat the previous owner installed. If that’s the case, you should be able to claim for it.

The only real barrier is that you may not know the completion date for the work or the cost. Not all sellers will provide you with this information. If that’s the case, you need to employ the services of a quantity surveyor. Your surveyor will provide you with a cost estimate, which you can use when claiming tax deductions in Australia. The Australian Taxation Office (ATO) does not accept estimates from other professionals. For example, you can’t get an estimate from your accountant for the work. It has to come from a quantity surveyor.

You Bought After the 2017 Budget

This is where things get more complicated. You have to consider the extent of the renovation work, as well as whether any was carried out in the first place.

The new budget introduced the term “new residential premises” into the equation. To understand what this phrase means, we need to look at the Goods and Services Tax (GST) Act.

What Does the GST Act Say

You’ll find references to “new residential premises” in sections 40 to 75 in the GST Act. Generally, such a premises is one that has not been rented out or sold as a residential home before your purchase. This won’t usually present a problem. After all, that language basically covers new properties.

However, there’s more. The Act also defines these premises as those that have undergone “substantial renovation” work. The GST Act also provides a description for “substantial renovations”. They are any renovations through which the entire building has either been replaced or removed. As a result, the installation of a new bathroom is not considered as a substantial renovation on its own.

What Does This Mean for Me?

Depreciation CalculatorIf your investment property in Australia does not fall into the substantial renovations category, you may not be able to claim the same deductions that you could on a property built before the 2017 Budget. In particular, you won’t be able to claim Division 40 depreciation. New equipment on its own is not enough to constitute a substantial renovation.

However, this changes if the building has undergone enough renovation to become a “new residential premises”. In such cases, you can claim for both Division 43 and Division 40 work.

You’ll need the help of a quantity surveyor to work out the extent of the work undertaken on your building. Your surveyor will create a timeline for the building. This will estimate the work carried out, its cost and its extent. You can use this information to figure out if your building falls into the “new residential premises” category.

Don’t fret if it doesn’t. You can still claim for Division 43 work. Your quantity surveyor will be able to provide more exact information detailing exactly what you can claim for.

Conclusion

You’ll need the services of a quantity surveyor, regardless of when your property was built. They will be able to tell you what previous renovations you can claim for.

We can help you if you’re looking for a quantity surveyor. Contact us today to maximise the depreciation on your property’s previous owner’s renovations.

New Tax Deductions for Small Businesses

tax deductions for small businesses

Joe Hockey delivers early Xmas present to Fit-out Contractors

Joe Hockey delivers early Christmas present via tax deductions for small businesses.

Small businesses with a turnover of less than $2m can now claim an immediate tax deduction when purchasing plant and equipment valued under $20,000.

This new tax break will deliver an early Xmas present to fit-out contractors who specialise in restaurant and small office refurbishments.

I was expecting a tax break but was surprised by the quantum of the tax break. Depreciation Quote Schedule

I think $20,000 as an immediate tax deduction for individual items is a huge amount and an incredible incentive to bring that fit-out forward.

Fit-out contractors now believe in Santa Claus and he’s taken the form of Joe Hockey.

Washington Brown recently refurbished our office for a cost of $202,000 and were able to claim $35,000 in depreciation in the first year. If we’d carried out the same fit-out today our first year depreciation would’ve been over $123,000. That’s a HUGE difference.

Quantity Surveyors are experts in breaking down the overall construction cost into individual items and now has never been a more appropriate time to do this.

There are four main points to consider:

  1. Small businesses should ensure a detailed report of any fit-out costs be carried out.
  2. When acquiring any new asset, small businesses should try to keep the costs below $20,000.
  3. This generous bonus has an expiry date of June 30, 2017.
  4. Assets costing over $20,000 can still be depreciated but not claimed as an outright deduction.

Some examples of what may qualify for an immediate tax deduction include carpet, desks, blinds, work stations and a lighting upgrade.

Now has never been a better time to upgrade that office or refurbish your restaurant.