Recent tax changes have tightened the reins on depreciation, but statistics are still showing that in most cases there is still value in having depreciation schedules completed for your property.

The Team at MCG Quantity Surveyors have provided some information as to how we can all but guarantee that you need a depreciation schedule.

1. The property commenced construction after the 16^th of September 1987.

If the property was built after this date, it means that you’ll be able to claim depreciation deductions on the value of the original building structure. These deductions are referred to as division. It’s a key trigger because worst case scenario, the report is going to be paying for itself.

For example, we’ve crunched the numbers from our database of landlords and found that the average build cost for a new investment property is $267,000. If we roughly index that back to say 1988 (because the cost to build back in 1988 was cheaper than today) you’re looking at a build cost of $102,000. Now some of that value would be plant and equipment, so we can conservatively knock off around $20,000 leaving us with $82,000 of qualifying division 43 building works. This will give you $2,050 worth of deductions each year until the year 2028, no matter when you bought the building.

2. The property has been extended, had a new kitchen and bathroom after the 16^th of September 1987

Like the above, but based on the improvements, you’ll be able to claim 2.5% of the value of the new building works/renovations each year from the date of completion for 40 years, whether the works were done by the previous owner or yourself. Therefore, you cannot simply say that a property built in the 60s won’t be worthwhile. So, the original structure won’t qualify if built before the 1987 date, but the renovations will if after 1987 (structural things like paths & fences would need to be after 26^th of February 1992). The trick now is knowing the rough value of the work being done. For every $100,000 worth of building renovations, you’re able to claim $2,500 of deductions each year. A quantity surveyor would need to estimate the value of these works if they were done by the previous owner, but anything over around $40,000 is likely to produce some worthwhile claims and most people can spot a spend of $40,000 on a kitchen and bathroom when they see it. If you’re not sure, ask a quantity surveyor.

3. You bought the property brand new

We’re still doing depreciation schedules for people that bought new properties and waited too many years to have one done and will subsequently not be able to back claim far enough to capture everything. The trick now with the depreciation changes is that if you bought after the 9^th of May 2017, you’ll kill the plant and equipment deductions if you ever decide to move in (plant items are things like carpets, appliances, heaters and the like). Also, if you bought prior to the 2017 budget, the property needed to be a rental in the 2016/2017 financial year.

These are probably the simplest three triggers that point you in the direction of a depreciation schedule, because it will save you money. There are plenty of odd cases and nuances, so an enquiry is always worth the cost of a bit of your time, but if you fall under any of these three categories, tax time might be a little more rewarding for you this year.

Please contact us at contactus@releasepm.com.au if you are interested in learning more and wish to be referred to a qualified ATO Quantity Surveyor.