Claiming the maximum amount of depreciation can be the difference between a cashflow positive property and a property that takes money out of your own pocket
When you purchase a property, the building, as well as the fixtures and fittings, will deteriorate over time. The tax office allows you to claim this deterioration as an expense against your rental income. This is called depreciating assets. There are complex rules and schedules as thick as old yellow pages, that determine what percentage things can be appreciated. Leave these details to the professionals.
However, knowing some important facts will help you maximise the tax benefit of your property. This will inevitably put money back into your pocket:
- You can depreciate buildings and fixtures and fittings, like kitchen cabinets, curtains, hot water systems, ceiling fans etc. However, you can’t depreciate land (as you may remember we mentioned in a previous video).
- It’s important to have a document that the tax office accepts as a basis for your depreciation and that allows for the maximum claim. The most concise claims are best prepared by a Quantity Surveyor (QS). The cost for this report is between $250 -$650 and can also be claimed as a tax deduction. Make sure you get a QS depreciation report completed when you purchase a property. Otherwise, you can do it in the first year you receive income on your property. Ask your property manager or your accountant for a Quantity Surveyor in your area. Do NOT let your accountant estimate your depreciation claims, their job is accounting, not quantity surveying!
- Claiming the maximum amount for depreciation will bring you a significant tax benefit. Many property owners aren’t aware of this or don’t claim the correct amount. Depreciation is a non-cash deduction.This means you do not need to spend any money in that year to be able to claim it. Our free download today is a case study showing three scenarios of how much money depreciation can put back into your pocket.
- Property owners of houses built prior to 15 September 1987 can only claim depreciation on the structure. (Not on any fixtures and fittings). However, you can claim the depreciation on renovations or structural improvements on these older houses if they were completed after that date. Particularly owners of old houses often don’t know they can claim depreciation. So if you own an old property make sure you get a report done. Then, you can claim your depreciation and increase your cash flow.
- To find out when the home was built ring the local electricity provider and ask when the power was first connected or your local council to search their records for the certificate of building completion.
- If you renovate your investment property, ask your Quantity Surveyor to update the depreciation report and include any new claimable items.
- On purchase of a property, depreciation starts all over again even if the previous owner had already claimed the maximum amount. So make sure to get that Depreciation report done when buying a rental property (in case you missed my point before).
- Remember, you still have to budget your cash flow for repairs and maintenance. These are fully deductible from your income when they occur.
We hope you will never miss out on depreciation claims against your income again. Don’t forget to download our case studies to see how this can affect your bottom line.