What is involved in preparing a tax depreciation schedule?
Are your fees fully tax deductible?
Why do I need a tax depreciation schedule?
What is the principle behind Property Depreciation?
When can Depreciation Allowance be claimed?
Main components of a Tax Depreciation Schedule
What Can I Claim?
Who can claim Depreciation?
If my property was built before 1985, is it too old?
How do you work out how old the building is?
Can I claim renovations done by the previous owner?
Can I claim the renovations in my property if I didn't arrange them?
Can I use a Tax Depreciation report as a market Value?
What info do I need to provide?
Why hasn't my accountant ever mentioned it before?
My accountant said it's not worth getting done.
Do I have to do anything special at tax time each year?
Can I backdate my depreciation deduction claim?
How does claiming depreciation on my rental property be beneficial to my investment?
How do we differentiate between repair works and capital works to my rental?
My client own 5 apartments in a complex. Can we consider the 4% (Traveller’s Accommodation)
deduction for capital works?
Am I entitled to claim deduction on any items in Unit common areas?
If the customer asks - How long will this take? When would I get my report?
My accountant said I need one, but I’m not sure?
I’ve owned the property for a few years now and never claimed depreciation?
Miscellaneous Notes
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Am I entitled to claim deduction on any items in Unit common areas?
Yes, depreciation allowances for common areas are apportioned according to unit entitlement.
Mandatory inspection of all properties especially the common areas in an apartment or high-rise block of units is
carried out.
Depreciable items in common areas include but not limited to Fire Hose Reels, Fire Extinguisher, Smoke
Detection & Alarm System, Hydrant Pump, Car parking, Pool/Spa Equipment, Gym Fitout and Equipment, etc.
If the customer asks - How long will this take? When would I get my report?
Generally if you get the confirmation letter back to us today we would aim to carry out the inspection within the
next few days, depending on access arrangements. The Quantity Surveyor would then prepare the report which
could take another 7 days.
What is involved in preparing a tax depreciation schedule?
What would happen is that we would carry out a detailed site inspection of your property to identify all of the
depreciable items.
From there our quantity surveyor will prepare a schedule which sets out the maximum depreciation allowances
for the Building, Structural Improvements and Plant & Equipment, including items such as floor coverings,
kitchen appliances, hot water service etc. This information is incorporated into a full report which sets out the
allowances for future years which you can then simply pass on to your accountant for preparation of your tax
return.
Are your fees fully tax deductible?
Yes, totally
Why do I need a tax depreciation schedule?
If you own an income producing property (rental property or business related) then you should obtain a tax
depreciation schedule if you wish to claim depreciation allowances. Schedules are prepared by qualified Quantity
Survey professionals to not only ensure that all possible deductions are identified but also that ATO governing laws
and requirements are met.
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What is the principle behind Property Depreciation?
To compensate taxpayer for the reduction in value of items used in the production of taxable income; assessed
as building works, plant & equipment, and structural improvements.
When can Depreciation Allowance be claimed?
Tax Depreciation can be claimed once a property becomes income producing, ie deriving an income from
tenancy or business related income.
Depreciation allowances are bound by ATO tax rulings and legislation, with specific key dates playing a
significant part in the preparation of a tax depreciation schedule. Reference to the Australian Taxation Office
legislation and tax rulings for depreciation is governed by the Income Tax Assessment Act 1997.
Main components of a Tax Depreciation Schedule
1) Building – Capital Works (Division 43) (the bricks & mortar, this is the actual main structure)
2) Structural Improvements (Division 43) (this refers to external works such as pool, fencing, paving etc.)
3) Plant & Equipment (Division 40) (Typical P&E items for a residential development include carpets, curtains,
air conditioners etc.)
What Can I Claim?
Basically our tax depreciation schedules are split into two sections:
1. Capital Works Allowance- Capital works are those building elements that are integral to the building
structure i.e. walls, floors, roofs etc. Residential investment properties constructed after 19th July 1985
are eligible to claim 2.5% or 4% of the original construction cost depending on the date the property was
constructed.
The ATO stipulates that "an appropriately qualified person" (TR 97/25) must be engaged to calculate original
building costs if accurate original costs are unavailable.
As Quantity Surveyors, HTW are appropriately qualified as outlined by the ATO to compile tax depreciation
schedules. Note: Valuers, Accountants and Real Estate Agents are generally not appropriately qualified.
2. Decline in Value of Plant and Equipment- Articles of plant and equipment can be deducted at an
increased rate compared to the capital works allowance. There are many items identified by the ATO
which can be categorised as plant and equipment. For example carpet, curtains, whitegoods, airconditioners etc are all considered to be plant and equipment (Note: This list is not exhaustive).
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Who can claim Depreciation?
Depreciation may be claimed on any property, either new or old. To claim depreciation allowance, the following
conditions must be satisfied:
1. The property must be owned by the taxpayer
2. The property must be used for the purpose of producing assessable income, or be ready for use for that
purpose
If my property was built before 1985, is it too old?
No. All properties are entitled to some form of depreciation regardless of age.
The investment property does not have to be new: Both new and old properties will attract some depreciation
deductions.
All fixtures and fittings are claimable. Also, any renovation or improvement carried out after 27/2/1992 is
entitled to some form of depreciation and capital works deductions respectively.
You can also adjust previous year’s tax returns: When a property owner has not been claiming or maximising tax
depreciation deductions, currently up to the previous two financial year’s tax returns can be adjusted and
amended.
How do you work out how old the building is?
The age of the building can be determined by obtaining council documents with dates pertaining to the original
application approval date or the Occupancy Certificate date, and final inspection date.
Can I claim renovations done by the previous owner?
Yes. Anything in the property that is part of a previous renovation will be estimated by our quantity surveyors
and depreciated accordingly. For capital improvements to qualify for the Division 43 construction write off
allowance, they must be completed after the 27th of February 1992.
Can I claim the renovations in my property if I didn't arrange them?
Yes. Any renovation will be valued by our quantity surveyors and depreciated accordingly as long as we can
verify the date at which the improvement, extension or renovation was made.
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Can I use a Tax Depreciation report as a market Value?
No. A market value is a service that only a registered valuer can provide. Quantity Surveyors estimate
construction costs as well as estimating costs for plant and equipment items.
What info do I need to provide?
Information we require to produce a Tax Depreciation Schedule includes the following:
1. Your settlement date
2. Purchase price
3. Any information pertaining to improvements or additions made to the property including dates and
costs where available
4. The date the property became income producing. (Tenancy date)
5. Floor Plans if available
Why hasn't my accountant ever mentioned it before?
Usually the main reason is TIME. It takes a great deal of time and specific construction knowledge to produce a
depreciation schedule. It's not that accountants don't know about depreciation, but they are not generally able
to produce a full schedule without inspecting the property, looking up the various values for fittings, fixtures and
construction costs, cross checking the tax act and then putting the whole lot into a report. By the time they did
that your schedule would cost thousands.
My accountant said it's not worth getting done.
He may be right, but it is also likely he might not have the specialist knowledge on Depreciation that we do.
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Do I have to do anything special at tax time each year?
If you have a tax depreciation schedule, you simply take it to your accountant, and it is lodged with your tax
return. The schedule remains valid for the entire time.
Can I backdate my depreciation deduction claim?
Yes, a depreciation report can be prepared to allow an individual to easily recover missing depreciation benefits up
to a period of 2 years.
How does claiming depreciation on my rental property be beneficial to my investment?
Claiming depreciation allowance offsets your total taxable income, and reduces the tax you have to pay in today’s
dollars. This will "free up" your cash flow and enable you to repay your mortgage or debt in a shorter duration.
How do we differentiate between repair works and capital works to my rental?
The distinction is between repairs and improvement. Improvement is dealt as capital works, whereas repairs are
dealt with as a normal outgoing expense.
All maintenance or repair works carried out during leasing period need to be examining on case by case basis by
our surveyor i.e. if the works are of repairs or improvement nature.
My client own 5 apartments in a complex. Can we consider the 4% (Traveller’s Accommodation) deduction
for capital works?
No. With hotel, motels and guesthouse, the taxpayer can claim the 4% rate. With apartments and units, the
taxpayer must own 10 or more in the same complex before they can use the 4%.
Am I entitled to claim deduction on any items in Unit common areas?
Yes, depreciation allowances for common areas are apportioned according to unit entitlement. Mandatory
inspection of all properties especially the common areas in an apartment or high-rise block of units is carried out.
Depreciable items in common areas include but not limited to Fire Hose Reels, Fire Extinguisher, Smoke
Detection & Alarm System, Hydrant Pump, Car parking, Pool/Spa Equipment, Gym Fitout and Equipment, etc.
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If the customer asks - How long will this take? When would I get my report?
Generally if you get the confirmation letter back to us today we would aim to carry out the inspection within the next
few days, depending on access arrangements. The Quantity Surveyor would then prepare the report which could
take another 7 days.
My accountant said I need one, but I’m not sure?
By getting a report done you are able to access entitlements that reduce your taxable income.
The report will enable you to reduce your taxable income by thousands each year and the initial fee is also
deductible. It’s better to have the money in your pocket than in the ATO’s.
I’ve owned the property for a few years now and never claimed depreciation?
All figures are calculated from settlement date and you can do an adjustment up to 2 years past.
So you may be able to claim up to 2 years of depreciation in this financial year.
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Miscellaneous Notes:
It is important to recognise that the purchase price of a property has no bearing on the deduction to be claimed,
as it is the building construction expenditure that is the basis of any claim.
In fact, in situations where for instance a significant property downturn has occurred and one is able to purchase
a rental property for below its construction cost, the construction cost (and not the purchase price) still serves
as the basis for claiming a deduction for this capital expenditure.
Although income tax legislation requires a person who is disposing of a property to provide the purchaser with
sufficient information (including total eligible construction costs and the amount of undeducted construction
costs) to enable the purchaser to determine any deduction entitlement, situations may arise where such details
are unable to be provided.
In cases where information is not available a quantity surveyor or other independent qualified person including
one with expertise within the building construction industry, can be engaged to provide the required details to
form the basis of a claim.
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