Depreciation Schedule for Property Investors

30 June is fast approaching. As property investors, organising a tax depreciation schedule will increase your deductions and potentially yield a higher refund on your tax return.

What is depreciation?

Depreciation is the natural wear and tear of a building and the assets within it over time. The ATO allows taxpayers to claim this non-cash cost as a tax deduction.

There are 2 types of depreciation:

• Capital Works (Division 43): This deduction occurs to the wear and tear of a building structure and the items permanently fixed to it. This includes any renovations made within relevant dates.
• Plant & Equipment (Division 40): This deduction occurs to the wear and tear of items that are easily removable from the property. For example, air-conditioning units, hot water systems, blinds and curtains.

Legislation changes to residential depreciation rules

In 2017, the depreciation legislation was amended. Second-hand plant and equipment are no longer be claimable as tax deductions. This means that if you purchased a property that was previously owned by someone else, you cannot claim Division 40. Division 43 remained unchanged. If you purchased a brand-new property or add any new plant and equipment to the property, you could still claim Division 40.

Claiming the full cost of the depreciation schedule

When engaging a quantity surveyor to prepare a depreciation schedule, there is a once off cost for the preparation of the schedule. This cost is fully deductible and schedule lasts the life of the property (40 years for a brand-new property).

Claiming partial year depreciation

If you only owned an investment property for a short period of time before the end of the financial year (weeks or even days), you can still claim for that period of ownership. Some quantity surveyors will apportion the amount for you in the report so you can use the figure immediately without doing the calculations yourself.

Receiving your refunds sooner in your pay

You can get access to your refunds before completing your tax return by submitting a PAYG withholding variation form. With the help of your accountant, you can estimate the tax refund amount for the year, submit the form to the ATO and your employer will take less tax out of your wages in every pay. When you are ready to prepare your tax return, those reduced tax withheld will be considered in your final tax refund. You can submit the PAYG withholding variation form at any time of the year.

Claiming prior year deductions

If you have owned investment properties from years ago but have not been claiming depreciation, ATO allows amendment of tax returns for up to two years to claim those deductions.

If you need assistance with any of the above, please contact Link Advisors for further advice.