Investors who buy even decades’ old properties are potentially missing out on thousands of dollars’ worth of tax depreciation deductions, because they wrongly think their investment properties are “too old” to be eligible.
The Australian Taxation Office allows the structure of an investment property to be depreciated over a 40 year period (commencing from construction completion.) Peter Foldes of leading Quantity Surveying firm Washington Brown Depreciation notes that if the property is built after 1987, there will likely still be considerable deductions available to the owner.
Even if the property was built before that year, there may be structural improvements that attract can be claimed on.
“It is a very rare occurrence that something like a 50-year-old property would not have had significant renovations or improvements done,” says Foldes, who was guest presenter at a recent webinar hosted by hotspotting.com.au.
“While the depreciation on the original structure of a 40-plus-year-old property has expired, as the current owner of an income-generating property, you are still entitled to claim a yearly deduction on the structural component of any renovations or improvements that have taken place after 1987.”
An accredited and experienced Quantity Surveying firm Washington Brown are entrusted by the ATO as being able to assess and estimate the dates and costs associated with any previous owners’ renovations.
Foldes continually hears of property investors who have bought a second-hand property and either do not realise that they are eligible to claim depreciation deductions or have been told that there are no deductions available. In many of these cases, the investors could be leaving tens of thousands of dollars in deductions ‘on the table’.
Regardless of how old the property is or whether it has had structural improvements done, it may be eligible for some depreciation deductions if the new owner has purchased and installed any brand new plant and equipment items such as dishwashers, air conditioners, carpets and hot water systems.
Foldes says a good Quantity Surveyor should be able to assess whether it is worthwhile for a client to obtain a depreciation schedule and give an indication of how much they can potentially claim before they go ahead and pay a fee for a report.
He says that many property investors and even some Property and Finance industry professionals may not fully understand how recent changes to legislation affect property tax depreciation calculations on investments.
All property investors should asking the question “Do I need a depreciation schedule” Foldes stated.
“If you own an investment property, I encourage you to engage us to ask whether proceeding with a report is of value to you.”
“The team here at Washington Brown are always happy to conduct a preliminary assessment and produce an estimate where relevant… at no cost.”
It costs nothing to ask the question and to find out that either there are no deductions / not enough deductions to make proceeding worthwhile, or that even though that property is second-hand, there are still thousands of dollars’ worth of deductions available to you over the course of your ownership”
Foldes says many investors wrongly think that, as the value of their property has increased through market growth, they need to have another depreciation schedule prepared -but that isn’t the case.
“Depreciation is and must be based on the construction costs, whether that’s known and provided or estimated by us as an accredited Quantity Surveyor company,” he says.
“We’re all hoping our property rises in value but that does not affect the depreciation calculations as they are based on the cost to build, at the time of the construction.”
Foldes says Washington Brown charges around $770 GST inc for an average depreciation schedule which lasts the life of an asset. “This fee is likely to be less if we determine that an inspection is not required in order to achieve the maximum ATO-compliant deductions for our clients.” He also reminded investors that this fee is a fully tax-deductible and one-off expense.
He says that “our clients are only proceeding with a report where there is a clear and certain return or benefit for them in doing so – there is no risk involved.” The cost of a report is minimal compared with the tax deductions you might be missing out on if you don’t at least check whether it is worthwhile to have a depreciation schedule prepared
“Property investors should definitely reach out to me and ask if there are any deductions available,” he says.
Peter Foldes can be contacted at firstname.lastname@example.org.