Property depreciation is a non-cash tax deduction available to the owners of income producing properties.
As a building gets older, items wear out – they depreciate. The Australian Taxation Office (ATO) allows property owners to claim this depreciation as a tax deduction. Depreciation on mechanical and removable plant and equipment items such as carpets, stoves, blinds, hot water systems, light shades and heaters are all claimable by property investors. There are also deductions available for the wear and tear of the structural components of a building, called capital works deductions.
Investors often wonder about the depreciation potential of older properties compared to new properties. Generally, owners of newer properties will receive higher depreciation deductions. However, all investment properties can attract depreciation deductions for their owners.
Newer properties have newer fixtures and fittings, so the remaining depreciable value of these items is higher, resulting in greater deductions. The same applies to the capital works deduction. 2.5% of the structural costs of a building can be claimed per year for forty years for any building constructed after 16 September 1987. Construction costs generally increase over time, making building write-off deductions on new buildings higher.
Owners of older properties can claim the residual value of the building up to forty years from construction. For example, if an investment property is five years old the owner will have thirty five years left of capital works deductions to claim.
Capital works deductions are governed by the date that construction began. If a residential building commenced construction before the 15th of September 1987, there is no building write-off available. Investors who own properties that are built prior to this date will still be able to make a claim on the plant and equipment within the property and include any recent renovations, even if the renovation was carried out by a previous owner.
It is always worth getting advice about the depreciation potential of a property regardless of age. The deductions are not as high on older properties but are usually enough to make the process worthwhile.
The table below shows the difference a depreciation claim can make for the owners of new, old and recently constructed investment properties.
As the table demonstrates, although the owner of a newer property will receive higher depreciation deductions in the first full financial year with $16,082, the owners of the older property still can receive around $7,127 in the first full year..
To receive a free estimate of the deductions available in any investment property or for obligation free advice, investors should contact BMT Tax Depreciation on
1300 728 726 and speak with one of our friendly staff.
Article provided by BMT Tax Depreciation.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS) is the Managing Director of BMT Tax Depreciation.
Please contact 1300 728 726 or visit bmtqs.com.au for an Australia-wide service.