30 June has come and gone, as a matter of fact, it seems as though it was ages ago! The year is flying by, but this doesn’t mean your tax deductions should be flying by as well. There is still time for property investors to get a tax depreciation schedule. Even if a schedule is ordered after the end of a financial year (FY), depreciation can still be back-dated, ensuring you are claiming all that you can claim.
What is depreciation?
As a general definition, depreciation is the expensing of the reduction in the value of an asset due to the natural wear and tear of an asset over time. Generally, an asset cannot be immediately expensed in full if it will provide benefits over several years – the concept of depreciation for tax purposes aims to spread the tax benefit of the asset over its useful life. This covers everything from carpets to air conditioners, the treatment of how rapidly they can be depreciated based on what the ATO determines their effective lives are.
What is a tax depreciation schedule?
A tax depreciation schedule, as the name suggests, outlines all the depreciation deductions available throughout the lifetime of an investment property, with a maximum period of forty years for these assets to be depreciated.
A tax depreciation schedule is prepared by a specialist quantity surveyor. Once prepared, the investor’s accountant will use the schedule each financial year to determine depreciation deductions.
What happens if a tax depreciation schedule is ordered after June 30?
As long as you have owned the property in the financial year, you can claim tax deductions for depreciation within that financial year (regardless of when you get the tax schedule). Our recommendation is to do this sooner rather than later so your tax returns are lodged on time. Also, whenever you get a depreciation schedule, the cost of obtaining this is fully tax-deductible as well.
How can an investor tell the difference between an improvement and repair?
Improvements must be depreciated, while a repair can be claimed as an immediate deduction. This constantly surfaces which sometimes requires some serious investigation. People want it to be deemed a repair as this can be claimed instantly, as opposed to an improvement as you do not receive the immediate tax benefit with this.
There’s one fundamental question an investor must ask themselves when determining what something is classed as – “have I improved this beyond its original state?’
For example, if an investor replaced their property’s old wooden fence with a new state-of-the-art gate and concrete fence, it’s likely that this is an improvement and will need to be claimed using depreciation deductions. But if they replaced part of a rusted gutter or a cracked tile, this would generally be classed as a repair.
Depreciation can be complex and difficult to understand, which is why it’s so important to reach out to an expert or to obtain a depreciation report. Contact Link Advisors if you are unsure of anything or if you would like us to point you in the direction of a great company that can provide a depreciation report.