Depreciation

Just like you claim wear and tear on a car purchased for income-producing purposes, you can also claim the depreciation of your investment property against your taxable income.

There are two types of allowances available: depreciation on Plant and Equipment, and depreciation on Building Allowance.

Plant and Equipment refers to items within the building like ovens, dishwashers, carpet & blinds etc. Due to Federal Budget changes on 9 May 2017, these deductions can only be claimed if the assets are brand new and have never used for personal use. Building Allowance refers to construction costs of the building itself, such as concrete and brickwork.

Both these costs can be offset against your assessable income.

You only need one depreciation schedule for each property that you own. The schedule will last for the life of the property, as set by the ATO (up to 40 years).

You should get a depreciation report commissioned as soon as possible after buying a property so that you can maximise the depreciation benefits that your Accountant can claim for you as part of your annual tax return.

Once the report is done and your Accountant has set up the asset values and depreciation schedules in your accounts the depreciation for each year can be calculated without needing to get any further deprecation reports for that property.

Simple. A depreciation schedule will help you pay less tax. The amount the depreciation schedule says you claim effectively reduces your taxable income.

Depreciation is known as a "non-cash deduction" because it's the only deduction that you don't have pay for on an ongoing basis. The deductions are in-built within the purchase price of your property.

Your depreciation report will cost between $495 and $715. This is based on whether Washington Brown’s quantity surveyors have all the necessary data and information to complete your report without requiring an inspection.

Each property is different and many varying factors must be considered when preparing a property depreciation schedule. With this in mind, please use the Depreciation Calculator to give you an estimate of potential deductions.

Absolutely. Our partners at Washington Brown offer to save you twice their fee in the first year or the report will be free. This guarantee is based on the tax deduction calculated 12 months from your settlement date or the date the property was first available for rent.

Washington Brown has assessed over 15,730 investment properties and has found that only 17.4% actually needed an inspection in order to achieve the maximum depreciation deductions.

They will never recommend a property inspection when there is no benefit to you.

3 reasons why some properties do not need an inspection in order to claim the maximum depreciation:

1. Due to changes in tax law, you can no longer claim on second-hand items, meaning there is no need to inspect them.
2. From working with Australia’s major property developers over the last 40 years, Washington Brown already has the building costs of hundreds of thousands of properties within Australia.
3. You’ve already got the plans, specifications and building contract, which is everything they need to claim the maximum depreciation on your investment property.
   

Here are 5 reasons why SOME properties STILL NEED a Depreciation Inspection:

1. Your property is unique – Your property is classed as High Spec/Luxury/Non-Standard and therefore not typical. An inspection will ensure the maximum deductions by ensuring all facets of your property are assessed and included.
2. Non-residential – This means you can still claim the full benefits of depreciation including the Plant & Equipment (carpets, blinds, etc.)
3. Renovated – Your property has been substantially renovated. There is insufficient information online and as such an inspection is necessary to maximise the depreciation.
4. More information required – They do not have access to sufficient information specific to your property. They, therefore, need to acquire this via an onsite assessment.
5. Plant & Equipment – Your property qualifies to claim Property Plant & Equipment deductions, an inspection ensures no assets are missed, which means your deductions are maximised.

Your depreciation schedule will take approximately 2-3 weeks to complete, as long as your property can be inspected without delay. In some cases, you can order a priority service at an additional charge.

The simple answer is no. If your residential property was built after the 16th of September 1987 you will be able to claim both Building Allowance and any brand-new Plant and Equipment. If construction on your property commenced prior to this date, you can only claim depreciation on any renovations, extensions or improvements that occurred since. However, these renovations can still represent significant deductions.

Depreciation rate time-line

Yes you can. Your accountant can amend your previous tax returns up to two years back. There are some exceptions so please contact your tax agent or the ATO for clarification.

If your residential property was built after 1985 your accountant is not allowed to estimate the construction costs. Tax Ruling 97/25 issue by the Australian Taxation Office (ATO) has identified Quantity Surveyors as properly qualified to make the appropriate estimate of the construction costs, where those costs are unknown.

Real estate agents, Property Managers, Accountants and Valuers are not allowed to make this estimate.

Chief Executive Officer of the Australian Institute of Quantity Surveyors (AIQS), Terry Aulich, advises that, whereas accountants can offer advice around other aspects of tax depreciation, construction costs and property depreciation are highly technical domains in their own right.

You, and your accountant if you wish, will be emailed a copy of the report. Additional fees will apply if you wish to receive a hard copy.

The simple answer is you can claim depreciation in the same way as you can if you bought a property here.

A great guide to learn about what you can and can't do is a publication from the ATO called Tax-smart investing: What Australians investing in overseas property need to know.

The depreciation laws work in a very similar way. One key difference, however, is that building allowance deductions are eligible on properties built (or renovated) since 22/08/1990.

The obvious barrier to claiming depreciation on overseas property is working out the construction cost and the expense associated with flying a Quantity Surveyor, to America for instance, to calculate the construction cost.

Washington Brown has affiliations in certain parts of the world so if you have bought a property, don't miss out on what you can legally claim.