Property depreciation is a valuable aspect of property investment in Australia. Depreciation is a tax deduction that allows property investors to offset the decline in value of their investment property over time. There are two types of depreciation: depreciation on the building (capital works deduction) and depreciation on plant and equipment assets within the property.
To effectively leverage property depreciation in Australia, it’s important to understand the two types of depreciation and how to maximize the deductions available.
- Capital Works Deduction:
This type of depreciation relates to the building’s structure and permanent fixtures such as walls, floors, roofs, and wiring. It’s claimed over a 25 to 40-year period, depending on when the property was built. To maximize capital works deductions, it’s essential to obtain a comprehensive tax depreciation schedule from a qualified quantity surveyor. This schedule will outline all depreciable items and their effective lives, allowing you to claim the maximum deductions available. - Plant and Equipment Deduction:
This type of depreciation covers removable assets within the property, including carpets, blinds, ovens, and air conditioning units. These items depreciate at a faster rate than the building structure, typically over 5 to 15 years. To leverage plant and equipment deductions effectively, it’s crucial to have a thorough understanding of all depreciable assets within the property. Engaging a quantity surveyor can assist in identifying and valuing these assets correctly to ensure maximum depreciation claims.
Tips for leveraging property depreciation:
- Engage a Quantity Surveyor:
A qualified quantity surveyor can conduct a thorough assessment of your investment property to identify all depreciable items and their effective lives. This will result in a comprehensive tax depreciation schedule, maximizing your depreciation claims. - Understand Legislation Changes:
It’s important to stay informed about any changes to legislation surrounding property depreciation. Being aware of updates and amendments to tax laws will ensure that you are maximizing your depreciation claims within the bounds of the law. - Consider Renovations and Improvements:
When making renovations or improvements to your investment property, it’s essential to understand the impact on depreciation. Some renovations may increase the depreciable value of the property, while others may have minimal effect. Consulting with a quantity surveyor before undertaking renovations can help you make informed decisions. - Keep Detailed Records:
Maintaining detailed records of all expenses related to the property, including purchase costs, renovations, and repairs, will substantiate your depreciation claims. Accurate record-keeping is essential to avoid any discrepancies during tax assessments. - Utilize Technology and Tools:
There are various online tools and software available to help property investors calculate and track their depreciation claims. Leveraging these resources can streamline the process and ensure that no depreciation deductions are overlooked.
It’s important to note that every property is unique, and the depreciation benefits will vary based on factors such as property type, age, and location. Seeking advice from a qualified accountant or financial advisor is recommended to ensure that you are leveraging property depreciation effectively within your investment strategy.
By understanding the nuances of property depreciation and leveraging it effectively, property investors in Australia can maximize their tax deductions and improve their overall return on investment.
