Depreciation, Capital Allowance & other Property Tax Questions

Taxing questions

If you’re a property investor it’s important to make sure you’re making the most of your investment. And when it comes to depreciation, there are a lot of savings to be had when tax time comes around

All types of income-producing properties have substantial taxation benefits available to be claimed as tax credits; unfortunately, many investors are missing out on literally thousands of dollars in lost tax depreciation deductions.

Both new and old properties will attract some depreciation benefit that the owner is able to claim as a tax credit. A common myth is that older properties will attract no claim.
So, are you maximising the capital allowance and tax depreciation benefits available? This topic can be a little confusing, so read on to have a number of your questions answered.

If my property was built before 1985, is it too old?

No. It’s worth noting that your investment property doesn’t have to be new – both new and old properties will attract some depreciation deductions.

Why are plant and equipment items itemised?

The ATO specifies an individual effective life for each plant and equipment item. The original building structure and capital improvements, or Division 43, are all written off at the same rate (unless building works have been completed over different legislation periods). Therefore individual costs for these items aren’t expressed in the report. If required by the ATO, the estimates for Division 43 can be justified.

Why does the depreciation and capital allowance schedule only last 40 years?

From the date of construction completion, the ATO has determined that any building eligible to claim the capital allowance has a maximum effective life of 40 years. So investors can generally claim up to 40 years’ depreciation on a brand new building, whereas the balance of the 40-year period from construction completion is claimable on an older property.

Can I claim renovations completed by the previous owner?

Yes. Anything in the property that’s part of a previous renovation will be estimated by a quantity surveyor and deductions calculated accordingly. This includes items that aren’t obvious, eg new plumbing, water proofing, electrical wiring etc. For capital improvements to qualify for the Division 43 capital write off allowance, they must have commenced construction within the appropriate Division 43 time periods.

What information do I need to provide?

You’ll be required to produce a Tax Depreciation and Capital Allowance report including the following:

  • Date of settlement
  • Purchase price
  • Access details for inspection (eg property manager or tenant details)
  • Any information pertaining to improvements or additions made to the property including dates and actual costs (where available)
  • The date the property became available for income-producing purposes

This article has been republished with permission from Your Investment Property magazine. Try our Loan Repayment Calculator and find the best repayment strategy for you.

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