Learning to Appreciate Depreciation
by Tyron Hyde, AAIQS, Director of Washington Brown
Did you know you could be missing out on thousands in tax savings each year because you are not fully maximising depreciation allowances on your investment property?
Depreciation is one of the most important (yet often overlooked) tax saving benefits available to investment property owners. Just like you claim wear and tear on a car purchased for income producing purposes, you can also claim the depreciation of your investment property against your taxable income.
There are two types of depreciation allowances: plant and equipment such as carpets, blinds and whitegoods; and, capital works items such as windows, brickwork and doors. Plant and equipment items have varying rates of depreciation while capital works items are claimed at 2.5 per cent per annum.
In order to maximise the tax savings on an investment property it is recommended you get a professionally prepared depreciation schedule. While there are DIY options in the marketplace, there is a high chance these will cost you money in missed deductions and increase your chances of an ATO audit. For example, with DIY options you are required to take your own measurements.
Now let's say you measure from one bedroom wall to the other. If you do that all around the house - you would reduce the property by 10% in gross area. At approximately $1500 a square metre to build, you would have missed out on something like $15,000 worth of tax deductions!
Key facts about depreciation:
- Your property doesn't have to be new 99 per cent of properties will attract some depreciation allowances.
- Depreciation is the only deduction that can be subjective. All other expenses - such as interest, strata fees, etc. must equal precisely the amount you have paid out.
- You can claim deductions on renovations, but get a professional assessment from a quantity surveyor before you renovate so you can claim full entitlements.
- Depreciating your investment property can dramatically improve your bottom line.
- If you have not been maximising or claiming your entitlements you can backdate your tax return.
How much can you save?
Savings can be in the thousands. Try Washington Brown's online tax depreciation calculator and get a free estimate of the potential tax savings you could be getting on your investment property.
Looking to buy?
One of the key benefits of the online tax depreciation calculator is that you can find out which properties will give you the best return before you buy.