Depreciation is one of the main tax incentives that property investors can claim, but in order to claim the right amount of depreciation and to maximise the cash return from your investment property you need a depreciation schedule drawn up by a qualified Quantity Surveyor.
What does a Depreciation Schedule include?
A depreciation schedule
is a very detailed document, but is usually separated into two main elements:
- Depreciation on the building
- Depreciation on plant and equipment
The building depreciation allowance allows you to claim on the structure of the building and is also known as the building write-off. This can include the brickwork and concrete. If built after 17 July 1985, you can claim 2.5 per cent per annum of the original construction cost, and can be claimed for a total of 40 years.
Depreciation on Plant and Equipment allows you to claim on items that can be removed from the building, such as blinds, ovens, dishwashers and carpets. These items all have different lifespans depending on what it is and its cost and could be written off completely in year one.
A depreciation schedule will list all items that can be claimed and the rate at which they can be depreciated as well as the lifespan of each item. The depreciation schedule should also include a breakdown of the total amount that you can claim per annum.
If you use a good quantity surveyor then the report should break down the plant and equipment depreciation into two options: the prime cost method and the diminishing value method. This allows you to decide which method suits you best.
Can investors claim both types of depreciation?
For residential properties that were built after 17 July 1985, investors can claim both types of depreciation, which can produce significant savings, especially if it is a brand new property as the highest depreciation claims occur in year one.
How do I get a depreciation schedule?
To get a depreciation schedule, you will firstly need to organise a qualified quantity surveyor to do a site inspection of your property. The inspection will include the quantity surveyor taking measurements and photographs as well as documenting all the qualifying items that you might not have even known you could have qualified for.
There is a cost involved with this, which is 100% tax deductible and this will vary depending on the size of your property, the location and the cost; however as you could be saving thousands of dollars over the lifetime that you own the property it is a worthwhile fee to pay.
How long does a depreciation schedule take to complete?
It will take approximately two to three weeks to complete a depreciation schedule, depending on if you can organise a quantity surveyor to inspect your property straight away.
When is the best time to get a depreciation schedule drawn up?
Once you settle on a property, this is the time that you should be focussed on contacting a quantity surveyor to get a depreciation schedule drawn up. This is because you will know what your property is worth, whilst if you are planning on renting the property straight away you can have this report created before tenants start living in the property.
You should also keep in mind that if you are planning on renovating your property, then you should get a depreciation schedule drawn up before you start work, and then another after the work has been completed. This is because the renovations that add to a property’s value can also provide tax deductions in the future.
If you do own an investment property whether old or new, then it is in your best interests to have a depreciation schedule drawn up to start claiming your tax depreciation allowances, helping you to reduce your taxable income and improve your cash flow.
Published on 25th of August 2015 by Marty Stanowich