While this might sound tempting, it’s also tax season and the perfect time to obtain a comprehensive tax depreciation schedule that ensures you maximise the deductions you can claim from an investment property.
Many of the items which make your home a cosy place to spend the winter months can also be found within an investment property.
When an investor asks a specialist Quantity Surveyor to complete a depreciation schedule for their property, they will perform a detailed site inspection to make sure that no items are missed.
One of the reasons investors often miss out on deductions at tax time is because they don’t seek expert advice. Quantity Surveyors are recognised under Tax Ruling 97/25 as one of a few professionals with the knowledge necessary to estimate construction costs for depreciation purposes.
To demonstrate some of the items which heat up the deductions you can claim from an investment property, let’s take a look at an example of the depreciation claims available in the first financial year in the following graphic.
The depreciation deductions in the above example have been calculated using the diminishing value method.
Capital works deductions have been calculated at a rate of 2.5 per cent. The immediate write-off rule and low-value pooling have been applied for applicable items.
There are two types of claims available in any income producing property as demonstrated by the graphic above; capital works deductions and plant and equipment depreciation*.
Capital works deductions apply to structural and fixed items within a residential property; for example the kitchen cupboards, walls, doors, drawers and shelving. Structural items will depreciate at a rate of 2.5 per cent per year over forty years so long as construction commenced after the 15th of September 1987.
An investor could claim $586 in the first financial year for the kitchen cupboards and $140 for the serving bar in the above property. Tiles on the splashback would also result in $74 in capital works deductions in the first year for the owner.
Any of the easily removable plant and equipment assets found during a site inspection of a property may also entitle the owner to claim depreciation deductions. Examples of plant and equipment assets as demonstrated above include the refrigerator, the range hood, furniture, light fittings, floating timber floors, the gas heater and ducted gas floor heating.
Unlike capital works deductions, depreciation for plant and equipment are calculated based on an individual effective life and depreciation rate set for each asset by the Australian Taxation Office.
In the above example, an investor could claim $398 in first year deductions for the range hood, $767 for the refrigerator, $176 for the light fittings, $820 for the gas heater and $512 for ducted gas floor heating. The smoke alarm, which costs less than $300 will entitle the owner to an immediate write-off for this item, meaning they can deduct its full value in the first financial year and claim $232 in deductions.
In total, an investor is able to claim $800 in capital works deductions and $4,228 in plant and equipment depreciation, a grand total of $5,028 in depreciation deductions in the first year for this area of the property alone. Additional deductions will also be available for the walls, doors, ceiling and joinery and any other eligible capital works or plant and equipment items found in the rest of the property.
*Under proposed changes to legislation, investors who exchange contracts on a second hand residential property after 7:30pm on 9th May 2017 will no longer be able to claim depreciation on plant and equipment assets. Investors who purchase a new property will be able to continue to claim these items as they were previously. We are currently speaking with government to further understand the intricacies relating to the proposed changes. To learn more visit www.bmtqs.com.au/budget-2017.
Date: 20 Jul 2016
By: BMT team
For more than 20 years, Sam has been a financial planner helping individuals and families achieve their financial planning goals, by providing advice on Investment Planning; Insurance Planning; Tax Planning; Retirement Planning; and Estate Planning. Working with a network of highly skilled professionals in Sydney he is dedicated to providing high-quality advice and integrated wealth management solutions that simplify and enhance the quality of his clients' lives.
Sam established his own firm in 1997 and has overseen its steady development and growth. Attention to detail, good listening skills and great empathy are symbols of his appreciation by his clients. He has built long-term relationships with his growing client base and aims to provide excellent customer service.
Sam began his financial planning career in 1993 after completing a Bachelor of Science degree in 1991. Since this time he has accumulated many professional qualifications such as:
Sam has volunteered with the Cancer Council of NSW and can be seen almost every year volunteering or participating in the 7 bridges walk.
Away from the business, he enjoys spending weekends with his son. He is also a football (soccer) tragic and is a massive Chelsea FC fan.
Having worked for national financial planning companies in the past, George has extensive experience in the provision of advice in risk insurance, investments and retirement planning and is focused on forming long-term relationships with his clients.
George has been awarded a Masters of Commerce (Financial Planning) and a Bachelor of Commerce through University of Western Sydney as well as having the Diploma of Financial Services (Financial Planning).
Jane Lim is a friendly character with a bubbly personality. She has the unique ability of making complex information sound simple and easy to digest.
Jane entered the financial services industry in 2006, and worked with big blue-chip financial companies such as Count Financial Limited and AMP Financial Planning Pty Ltd.
She holds a Master's degree in Applied Finance through Macquarie University, and she is a member of the Million Dollar Round Table.
Being a self-confessed "tennis nut", Jane spends many weeknights in the tennis court, and is a frequent member of Sydney's Eastern Suburbs Tennis Competition.
Being a highly motivated professional, Jane is always eager to help her clients on a wide range of financial planning needs.
Paul has been a financial planner for over 15 years helping individuals and families successfully achieve their financial planning goals. He is very focused on building successful long-term harmonious relationships with his clients.
He provides a holistic approach on various aspects of financial advice encompassing areas such as Investment Planning; Insurance Planning; Tax Planning; Retirement Planning and has extensive experience and knowledge in these fields.
Paul's professional qualifications are:
Away from his professional life, he enjoys spending his time with his family doing various activities such as coaching his son and taking him to games. He is a very avid sports fan and a cricket enthusiast.
Client Services Manager
Christian joined Capitalwise as Client Services Manager, with backgrounds in both customer service and administration.
Christian is passionate in providing excellent customer service by being attentive to client’s need as well as being able to circumnavigate challenges.
He holds a Master's degree in Commerce specialising in Marketing through the University of New South Wales.
Volunteering is one of his delights in life, where he had spent time being involved with the Centre for Volunteering, St Vincent de Paul's Society, and Sculpture by the Sea in a variety of positions.
Jenny is a University of New South Wales graduate who joined the team as an Administration Assistant. She is keen to put her customer service and organisational skills to use, making sure day to day operations run as smoothly as possible.
Outside of work, Jenny focuses her efforts on karate and ice hockey. She can often be found coaching and practicing karate at her alma mater. The rest of her time is spent at one of Sydney’s many ice rinks playing, practicing, or officiating ice hockey.
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