I’m constantly surprised by how many investors are paying way too much tax. They are not aware of all the tax deductions on investment property options available to them to ensure they are saving as much tax as possible.
I’ve found that many investment properties have not had a quantity survey of their investment. I can only assume they aren’t aware how much tax they are paying without one.
I honestly believe that a quantity survey is more important to you than landlord insurance. So I am going to point you in the right direction.
Summit Quantity Surveyors are local and do a great job. You’ll probably find they will; charge you around $400 for creating a tax deductions on your investment property. Of course to learn more you can call them on 1300786367 OR email them here.
Tax depreciation on a residential investment property is a deduction against assessable income allowing the owner to reduce the amount of taxation payable. The deduction is based on the depreciating value of the property asset. An investor is able to claim for two distinct types of depreciation on buildings:
This deduction is on the historical construction costs of the property which may include, engineering, architectural and building fees. However this cost does not include the land acquisition cost and site preparation The rate of depreciation is fixed over either 25 or 40 years determined by criteria set by ATO legislation.
Typical Capital allowance items are driveways, the building structure itself, concrete, carports.
PLANT AND EQUIPMENT
These items are depreciated at a higher rate than that applied to the building. Assets included in this class are predefined by ATO legislation and the rate of depreciation is determined by the Commissioner of Taxation. The rate of depreciation reflects the Commissioner’s interpretation on the effective life of the asset to produce assessable income. Typical plant and equipment items are air conditioners, blinds, carpets, curtains, door closers, hot water systems, ovens, range hoods, etc.
WHAT’S A TAX DEPRECIATION SCHEDULE?
A tax depreciation schedule is a professional report prepared by a suitably qualified Quantity Surveyor which shows the amount of depreciation able to be claimed over the life of the building. Tax Depreciation schedules should last 40 years and include both the diminishing value method (which includes 100% deductions and pooling) and the prime cost method.
The report will identify each year, from the date of purchase, the total tax depreciation claim available to the property investor.
A Quantity Surveyor should be able to answer all of your detailed questions and will ensure that no items are missed, the maximum claim is made and that the report complies with the ever changing rules prescribed by the Australian Taxation Office (ATO).
40 YEARS OF TAX DEDUCTIONS
Yep the right report will last as long as 40 years. That’s a load of depreciation I think you’d agree, but you need to be careful not all companies reports are able to last this long, some are as short as 10 years. Yikes.
WHAT CAN YOU CLAIM?
The ATO has a detailed list but the truth is you can claim a lot more things than you’ll probably realise, like the frame, retaining walls, concrete slab, roof and paving. Here’s a list of some of the other items:
Floating Timber Floors
Garage Door Motors & Controls
Hot Water Systems
Solar Power Generators
You can see a more complete list of plant and equipment items for residential property can be found here.
WHAT IF MY INVESTMENT PROPERTY IS OLD?
Perfect. The reports can be used with brand new or older properties. So there’s no real reason not to get a report. At the time of writing this MCG quantity surveyors offer a guarantee to get at least $1,200 back in the first year, which more than covers the cost of the tax depreciation report, but check in with them if this offer still stands.
WHAT’S IN THE TAX DEPRECIATION REPORT?
That’s going to depend on who does the report for you. You need to at least ensure who you use will offer a report that can last the entire 40 years, like the reports MCG quantity surveyors do. Below is a list of what you should expect to see in your report:
Method statement and property overview;
Will help with tax deductions on investment property;
Summary and schedule of diminishing value method of depreciation;
Summary and schedule of prime cost method of depreciation;
Complete list of all pooled items contained in the property;
List of all Division 43 capital allowances available from the property;
Detailed 40 year summary showing the diminishing value and prime cost claims side by side;
Graph comparing the two methods of depreciation in order to select the most appropriate method;
All common property items within strata or community title complexes which the owner is entitled to claim over such as lifts, foyers, basements and all associated common plant and equipment;
MCG reports are designed to be detailed enough for accountants to be able to claim all the deductions available to them but easy enough for the property investors to understand how to read them. Keep in mind if you’ve owned the investment property for some time now the report can go back a number of years allowing you to maximise the claim.
As you can see with the deductions that are available to you, you’d be silly not to organise a report and start to benefit from the additional tax deductions that are available to you. No one wants to pay more tax and this is a sure way to ensure you are reducing your tax as much as you possible can.