Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 311

Seven property depreciation tips for EOFY

With tax time just around the corner, many property investors are preparing to visit their accountant to complete their annual income tax assessment. Getting your tax in order can be an overwhelming task, but when you have a commercial investment property it can seem even more complex. There are many factors for commercial property investors to consider when lodging a tax return, including property depreciation.

To help you get the most out of your commercial property, here are eight top property depreciation tips for this end of financial year.

1. Both new and old commercial properties can be depreciated

Depreciation deductions can be claimed for the wear and tear of the building structure via a capital works deduction and for the plant and equipment assets within the property.

The Australian Taxation Office (ATO) allows owners of any commercial property in which construction commenced after 20 July 1982 to claim capital works deductions. If your property was built before this date, there may still be deductions available so consult with an expert.

For traveller accommodation, this date is 21 of August 1979. Depending on the year of construction, capital works deductions can be claimed at either 2.5% or 4%.

Depreciation deductions for plant and equipment assets are generally calculated based on the individual effective life for each item as set by the ATO.

2. Commercial tenants can claim depreciation too

It’s not just owners who can claim depreciation. Commercial tenants can claim depreciation for any fit-out they add to a property once their lease commences, including blinds, carpets, shelving, smoke alarms and security systems.

If lease conditions mandate a tenant return the property to its original condition, they may also be able to claim a write-off for any remaining depreciable value on the removed assets. In this instance, scrapping can be applied. Assets left behind by a previous tenant may also be available to be claimed by the property owner.

3. Know the difference between repairs and improvements

It’s important to understand the difference between a deductible repair and an improvement.

A repair is when an item or property is returned to its original state to retain its value. Repairs attract an immediate 100% deduction in the year of expense.

Improvements, on the other hand, occur when an investor enhances the condition of an item or property beyond that of when it was purchased. As improvements are capital in nature, they must be depreciated over time.

4. Don’t wait if you’ve only just purchased a property

If you haven’t owned your investment property for a full year you can still claim depreciation deductions this financial year.

Investors can claim partial-year depreciation deductions for the period their property is rented out or is genuinely available for rent. That is, when the property is given broad exposure to potential tenants and considering all the circumstances tenants are reasonably likely to rent the property.

Quantity surveyors use legislative tools such as the immediate write-off rule and low-value pooling method to make partial-year claims more beneficial to investors.

5. Make use of techniques that maximise deductions early

An immediate write-off applies to any item within an investment property with a value of less than $300. Investors are entitled to write-off the full amount of these assets in the year of purchase.

Low-value pooling, on the other hand, is a method of depreciating plant and equipment assets which have a value of less than $1,000. Such items can be added to a low-value pool and written off at an accelerated rate to maximise deductions. Item can be depreciated at 18.75% in the first year and 37.5% each year thereafter.

Immediate write-off and pooling rules may also apply if an asset is below a certain value, particularly for small and medium-sized business owners. As plant and equipment items are rarely the same age as the property and are often replaced and updated, there can be significant deductions available.

Specialist quantity surveyors can maximise your tax return by applying the immediate write-off rule and adding eligible assets to a low-value pool.

6. Amend previous tax returns

If you haven’t been claiming property depreciation deductions, the ATO allows investors to amend two previous tax returns. A tax depreciation schedule can provide the details of any deductions missed for an accountant to make a claim.

7. Get an expert to assess the property and provide a tax depreciation schedule

To ensure the correct deductions are claimed, investors should speak with a specialist quantity surveyor. Tax Ruling 97/25 states quantity surveyors are one of the few professions qualified to estimate construction costs for depreciation.

A quantity surveyor will inspect the property to make sure every plant and equipment asset is identified and that claims for fit-outs are correctly noted.

Having a tax depreciation schedule for your investment property has many lasting benefits and can help you build your wealth. A schedule will outline the available deductions for your property and help your accountant when lodging your tax return.

 

Bradley Beer is the Chief Executive Officer of BMT Tax Depreciation. The website provides additional details. This article is general information and does not consider the circumstances of any investor.


 

Leave a Comment:

RELATED ARTICLES

Australia tops Asia-Pacific for property investment

Four tips on what makes a good commercial property

Demand for non-residential property drives returns

banner

Most viewed in recent weeks

Are term deposits attractive right now?

If you’re like me, you may have put money into term deposits over the past year and it’s time to decide whether to roll them over or look elsewhere. Here are the pros and cons of cash versus other assets right now.

Uncomfortable truths: The real cost of living in retirement

How useful are the retirement savings and spending targets put out by various groups such as ASFA? Not very, and it's reducing the ability of ordinary retirees to fully understand their retirement income options.

Where Baby Boomer wealth will end up

By 2028, all Baby Boomers will be eligible for retirement and the Baby Boomer bubble will have all but deflated. Where will this generation's money end up, and what are the implications for the wealth management industry?

How retiree spending plummets as we age

There's been little debate on how spending changes as people progress through retirement. Yet, it's a critical issue as it can have a significant impact on the level of savings required at the point of retirement.

Is Australia ready for its population growth over the next decade?

Australia will have 3.7 million more people in a decade's time, though the growth won't be evenly distributed. Over 85s will see the fastest growth, while the number of younger people will barely rise. 

20 US stocks to buy and hold forever

Recently, I compiled a list of ASX stocks that you could buy and hold forever. Here’s a follow-up list of US stocks that you could own indefinitely, including well-known names like Microsoft, as well as lesser-known gems.

Latest Updates

Property

Financial pathways to buying a home require planning

In the six months of my battle with brain cancer, one part of financial markets has fascinated me, and it’s probably not what you think. What's led the pages of my reading is real estate, especially residential.

Meg on SMSFs: $3 million super tax coming whether we’re ready or not

A Senate Committee reported back last week with a majority recommendation to pass the $3 million super tax unaltered. It seems that the tax is coming, and this is what those affected should be doing now to prepare for it.

Economy

Household spending falls as higher costs bite

Shoppers are cutting back spending at supermarkets, gyms, and bakeries to cope with soaring insurance and education costs as household spending continues to slump. Renters especially are feeling the pinch.

Shares

Who gets the gold stars this bank reporting season?

The recent bank reporting season saw all the major banks report solid results, large share buybacks, and very low bad debts. Here's a look at the main themes from the results, and the winners and losers.

Shares

Small caps v large caps: Don’t be penny wise but pound foolish

What is the catalyst for smalls caps to start outperforming their larger counterparts? Cheap relative valuation is bullish though it isn't a catalyst, so what else could drive a long-awaited turnaround?

Financial planning

Estate planning made simple, Part II

'Putting your affairs in order' is a term that is commonly used when people are approaching the end of their life. It is not as easy as it sounds, though it should not overwhelming, or consume all of your spare time.

Financial planning

Where Baby Boomer wealth will end up

By 2028, all Baby Boomers will be eligible for retirement and the Baby Boomer bubble will have all but deflated. Where will this generation's money end up, and what are the implications for the wealth management industry?

Sponsors

Alliances

© 2024 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.