5 TOP TIPS
TO SAVE THOUSANDS OF TAX DEPRECIATION DEDUCTION MONEY
Yes it’s tax time again! If you dread this time of the year, you’re not alone!
Here are our 5 tips to avoid running into strife with the ATO and save thousands of tax depreciation deduction money.
1. Amend previous tax returns to claim missed depreciation deductions
It’s not the end of the world if you’re not already claiming property depreciation deductions. The ATO allows you to amend up to two previous tax returns.
Get a qualified depreciation specialist to evaluate the property and provide a tax depreciation schedule from the date your property was eligible for the claim.
This tax depreciation schedule can provide the details of any deductions missed, which will help your accountant with the process.
2. Claim residual write-off value of disposed depreciable assets
Before you embark on a renovation project, make sure you track all the assets you’re about to dispose of. Then get a depreciation schedule written up. If you don’t, you could miss out on significant unclaimed tax deductions for the remaining value of the demolished assets.
A Quantity Surveyor can be engaged to assess the residual value of these assets and advise your accountant what to claim in your first year of ownership.
That value can be claimed as an immediate 100% deduction and possibly result in significant tax savings. For example, a 25-year-old kitchen might still generate a full deduction of around $5,000.
You can still claim depreciation on all new items when the renovation is completed.
3. Understand the difference between repairs and improvements
A ‘repair’ refers to a situation where an investment property asset is returned to its original state to retain its value. You can claim an immediate 100% deduction of the repairs in the year of expense.
On the other hand, an ‘improvement’ is where you enhance the condition of an asset beyond that of when it was purchased. As improvements are capital in nature, they must be depreciated over their respective life periods.
For example, if you repainted an existing wall or repaired an oven, you can generally claim that tax deduction in year one. But if a new kitchen is installed, it is considered part of the building and will depreciate over 40 years.
Don’t claim improvement items in full. You will risk getting into trouble with the ATO.
4. Remember, depreciation is also available to tenants of commercial properties
A tenant of a commercial property can claim depreciation for any building works and/or plant and equipment they add to the property during their lease period. This could be a complete office fitout or just an additional toilet, a kitchenette, blinds, carpets, lighting, smoke alarms, or security systems.
A tenant can also claim a residual value write-off for any removed assets at the end of their lease. Especially if they’re required to restore the property to its original condition in accordance with the lease agreement.
On the other hand, the property owner might be able to claim depreciation on assets left behind by a previous tenant.
5. Employ an experienced and qualified tax depreciation specialist
Don’t bother with DIY depreciation or use non-qualified people to prepare your Tax Depreciation reports!
While you might save a few hundred dollars of professional fees, which is fully tax-deductible anyway, you could risk losing thousands of dollars in missed eligible deductions. You could also attract an audit by the ATO if the report is not up to the required standards.
The tax laws have changed frequently over the years – and every property is unique.
Quantity Surveyors, who must also be qualified as tax agents, are trained to:
- estimate the original construction costs where that figure is unknown
- identify non-standard plant and equipment items that are claimable, and
- use legislative tools, like the immediate write-off rule and low-value pooling method, to make partial-year claims more beneficial to investors.
It pays to get expert advice!
Who can I talk to about depreciation for my investment property?
Xinvest Quantity Surveying has a team of tax depreciation experts who are recognised by the ATO as suitable for completing depreciation schedules for property investors.
Our friendly team members will be very happy to assist with any property tax depreciation enquiries you might have.