What you Can and Cannot Claim from Tax Depreciation

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Read ahead to find out what tax depreciation you can claim and cannot claim, and who ask for the right advice.

Depreciation Deductions for Investors

Two types of depreciation deductions apply to property investors. They are:

  • Division 43 capital works deduction
  • Division 40 plant and equipment depreciation

Division 43 capital works deduction covers the structural parts of a home or building. These include the roof, tiles, walls, doors, concrete floors, and more. So basically, this type relates to virtually anything that makes up the building, including structural makeovers done before or after the property was bought.

How to Calculate Depreciation

Under capital works deduction, you can claim 2.5% of money you spent on construction from the year it was built for a maximum of 40 years. For example, for a property that was constructed in 2015 at a cost of $400,000, a 2.5% deduction amounting to $10,000 annually can be claimed until 2055, or equivalent to 40 years.

Remember that properties constructed after September 15, 1987 are covered by capital works deduction. Capital works deduction on buildings constructed before this date cannot be claimed. If the property is older, then Division 40 plant and equipment deduction applies.

How to Claim Plant and Equipment Deductions

Plant and equipment deduction relates to items in the property that are unattached or can be removed. Many investors have the mistaken belief that not a lot of deductions can be claimed on older buildings. However, this tax write-off can deliver major savings.

Here are some deductible items in an investment property, together with their actual tax write-off periods:

  • Garden watering systems (5 years)
  • Smoke alarms (20 years)
  • Kitchen appliances (10 to 12 years)
  • Carpets and blinds (10 years)
  • Ceiling fans (5 years)

These are just examples. The ATO says that roughly 6000 plant and equipment items in an investment property can be claimed by owners. To help you search information related to this topic, use the Resi Rates app. It can quickly find a residential property’s depreciable assets and their actual life spans.

What Depreciation you Cannot Claim

Depreciation cannot be applied on a few items, including a property’s land and any soft landscaping expenses. The full residual value of a scrapped item you dispose of can be claimed, but demolition is not included. There is a larger issue concerning depreciation claims and that is investors missing significant deductions that they can claim, not the opposite.

Where Can you Seek Advice

Investors should maximise their depreciation so that they can maximise the return on their investment. Just some simple questions and a certified quantity surveyor can tell you whether obtaining a depreciation schedule for your property before you commit to having one done would be advantageous. There’s no risk involved because a significant number of competent quantity surveyors offer a money-back guarantee on their services.

A lot of investors are not benefitting from invaluable deductions annually, so make sure you know what claims apply to your investment property. This will help increase your savings at tax time.

Seek advice from a tax specialist to help you identify what deductible items apply to your investment property. Engage the services of PJS Accountants to manage your tax affairs. We offer a full range of compliance, corporate and individual tax services. Our experienced staff will help you navigate the ever-changing tax laws and requirements in Australia. For enquiries, contact PJS Accountants.