A tax depreciation schedule is something that every property investor should be aware of in order to take full advantage of depreciation deductions that are available to them. Unfortunately, research shows that over 70% of investment property owners don’t buy a tax depreciation schedule, resulting in thousands of dollars worth of deductions that end up lining the pockets of the taxman instead. Today, we dive into exactly what a tax depreciation schedule is and why you need one as a property investor, so read on to find out more.
Before diving into exactly what a tax depreciation schedule is, it is important to understand exactly what depreciation is. In a nutshell, depreciation in value of an asset is a natural occurrence as time progresses. Wear and tear and other factors lead to a depreciation in value which investors stand to benefit from. The Australian Taxation Office (ATO) allows owners of brand new income-generating properties to claim this depreciation as a tax deduction.
When it comes to deductions, they can be divided into two distinct categories: division 43 capital works allowance and division 40 plant and equipment depreciation.
Capital Works Allowance – The capital works allowance is able to claim for wear and tear that occurs to the structure of the property as well as costs of fixed items and any renovations that are performed on the property. This can be in the form of additions such as balconies and or the breaking down or putting up of walls in a property. Generally, any residential property that was built after the 15th of September 1987 will entitle its owner to capital works allowance at a rate of 2.5% per year for up to forty years.
Plant and Equipment Depreciation – Plant and equipment depreciation can be claimed for the removable fixtures and fittings within the property. There is an extensive list of There are more different depreciable assets recognised by the ATO, including items such as carpets, flooring, window treatments, hot water systems, smoke alarms and kitchen appliances. Do note that each plant and equipment asset is already assigned an individual depreciation rate and effective life duration.
Now that we understand depreciation, let’s talk about the tax depreciation schedule. The tax depreciation schedule is a legal document that is drawn up by a licensed quantity surveyor and contains information about depreciable assets that are found within your property. This report is then passed on to your accountant who will be able to assist you in making an accurate return that gets you the best refund possible.
Accountants are not legally allowed to prepare tax depreciation schedules, and using a quantity surveyor is the only way you will be able to produce a schedule that is viable in the eyes of the ATO. Do note that schedules from developers will not be accepted as they are often skewed for the purpose of marketing.
In order to maximise your annual deductions, it is important that you purchase your depreciation schedule prior to the end of the financial year. Even if you have not owned the property for an entire financial year, it is still advised to order your schedule in order to be eligible to claim a partial deduction.
Failing to organise your tax depreciation schedule can result in the loss of thousands of dollars, so if you have yet to get your depreciation schedule prepared, we urge you to do so as soon as possible. With a depreciation schedule in hand, you will find that you are able to maximise the benefits available to you under Australian law for both new and old properties.