Get wise about the value of depreciation

May 1, 2014

5 May 2014

When it comes to property investing, depreciation is the icing on the cake. But every year, thousands of dollars go unclaimed by investors who overlook the benefits available.

While your investment property’s total value is likely to increase over time, some of the building’s features and fittings will decline in value as they become old and wear out.

The Australian Tax Office (ATO) allows you to claim this depreciation against your taxable income – effectively reducing your tax bill.

There are two main types of depreciation you can claim each year:

  • Plant and equipment – Covers items within the building such as carpet, blinds, ovens, hot water systems and air-conditioning systems.
  • Building allowance – Covers the structure of the building such as bricks, walls, flooring, electrical wiring, windows and toilets.

We spoke to Michael Ross, a tax depreciation specialist from MBM Quantity Surveyors, who shared his top tips for making sure you don’t miss out when it comes to depreciation.

Don’t worry about age
One of the most common mistakes people make is to assume their property is too old to depreciate. In fact this is not the case for residential property. If your property was built after July 1985, you will be able to claim both building allowance and plant and equipment. And for properties built before July 1985, you can still claim depreciation on plant and equipment and for building works carried out after the July 1985 cut off.

Talk to a specialist

Calculating the amount of depreciation requires specialist knowledge of historic construction costs so it makes sense to talk to an expert. A quantity surveyor who specialises in tax depreciation will carry out a physical inspection of your property and put together a depreciation schedule that can be used by your accountant to make a claim.

It’s not too late

If you haven’t previously made a depreciation claim you can still claim for up to two prior years of ownership. In addition, whenever you spend money on new assets for your property you can update your depreciation schedule. You could potentially be saving thousands of dollars on your tax bill.