Partial Year Property Depreciation

Even if you have not owned your rental property for a full financial year, you could be missing out on valuable depreciation deductions if you do not hold a tax depreciation schedule.

The Australian Taxation Office (ATO) allows property investors, which lease out income-producing properties, to claim this depreciation as a tax deduction, even for properties owned for a part of the tax year.

What is property depreciation?

Property depreciation is the natural wear and tear of both the property and the assets contained within the property.

There 2 categories of depreciation are.

• 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.
• Capital Allowances / Plant and 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.

Partial year depreciation deductions

Property investors can claim pro-rata depreciation deductions for the portion of the year that their property is either rented out or genuinely available for rent.

Partial year depreciation deductions are common in holiday homes where landlords may only advertise a property during holiday periods and/or where a landlord uses the rental property for their personal use for a period.

Immediate write-off and low value pooling

The immediate write-off rule and low value pooling can be used to maximise deductions in a partial financial year.

These rules operate as follows;

• Immediate Deduction - allows an immediate tax deduction for any new asset that costs $300 or less.
• Low Value Pooling - Assets that cost or have an opening adjustable value of less than $1,000, can be placed in a low-value pool. The rates are;
  • 75% in the year of purchase
  • 5% in the second and subsequent years held

It is important to note that once an asset is added to the low-value pool it cannot be taken out, and all future low-cost assets must be added to the pool in the current and future income years.

If you have a rental property, and are unsure whether a Tax Depreciation Report could save you tax, please reach out to Link Advisors and we can provide you guidance on obtaining this report, so that you can start maximising your rental deductions.