I recently gave a webinar titled “8 Things You Don’t Know About Depreciation”. The feedback was excellent.
During the webinar, the most insightful topic I spoke about was on the effective life of depreciable items.
(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).
You see, when you buy an investment property part of the purchase price includes things such as carpet, ovens, blinds and other loose items.
The Australian Taxation Office (ATO) determines how long these types of items will last for. This determination then governs how much you are able to claim annually.
But what happens when you acquire carpet that is seven years old?
Well, you (or a qualified quantity surveyor) can reassess the life of the carpet and assign a new effective life.
For instance, if the carpet is seven years old, you can say the carpet is only going to last for three more years. So now you can claim the remaining value at a rate of 33.3% per annum for the next three years to equal the same deductions you would have received over the ten years.
Effective life deductions can make a huge difference to the annual amount you as a property investor can claim!