What is tax depreciation and how can you claim it on your investment property? Well, firstly we need to fully understand what depreciation actually is in order to know what we can claim. Our friends at BMT Tax Depreciation have lent a helping hand to share their expert knowledge. BMT defines depreciation as “a deduction the owners of any income-producing property can claim. This is related to the wear and tear which occurs to the building structure and the plant and equipment assets contained.”
When End Of Financial Year is looming, we need to be prepared. Yes, it is always a lot easier to throw it all in the ‘too-hard-basket’. But it’s important to remember to pay particular attention to the finer details of claiming Tax Depreciation. By doing so, this can save you hundreds, maybe even thousands!
If you’re like a lot of Aussie’s out there, you too are overwhelmed at the thought of EOFY. And if that is the case, then we highly recommend calling in the experts to do the dirty work for you. BMT supply a free estimate where they provide you with an outline of your likely deductions. So, what have you got to lose or, more importantly, what have you got to gain ($$$)? In the meantime, BMT has helped us compile a list of the Top 5 Things you need to know about Tax Depreciation.
5 Things you need to know about Claiming Tax Depreciation.
1. It’s Not Just New Builds That Can Claim
A common misconception a lot of investors make is that only the owner/s of new buildings will benefit from the deductions they can claim. The age of a building may make a difference to the overall deductions found. However, it’s always worthwhile making the call to discuss whether it’s feasible to provide a depreciation schedule.
2. Two Elements to a Depreciation Claim
In any investment property, there are two elements which make up an owners depreciation claim. The capital works allowance can be claimed for the structural components and any fixed items such as the walls, doors, roof, and tiles. Plant and equipment depreciation can be claimed for any of the mechanical or easily removable assets found in the property such as carpets, blinds, and hot water systems. Under proposed changes, investors who exchange contracts on a second-hand residential property after 7:30 pm on 9th May 2017 will no longer be able to claim depreciation on plant and equipment assets. Investors who purchase a new property will be able to continue to claim these items as they were previously.
3. Capital Works Component
Investors often believe they can’t claim depreciation for an older property as the ATO places restrictions on deductions for the capital works component. To be eligible to claim capital works, the rules state that the construction of a residential building must have commenced after the 15th of September 1987 and for a commercial building after the 20th of July 1982.
4. Plant & Equipment Assets Exclusion
Deductions for the capital works component restrictions don’t apply for the plant and equipment assets. These assets will depreciate based upon an individual effective life which resets from the date of settlement. Often older properties have also been renovated.
5. Depreciation Deductions
Any work completed within the legislated dates can entitle its owner to depreciation deductions, even if the work was completed by a previous owner.