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

10 reasons wealthy homeowners shouldn't receive welfare

The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?

Three all-time best tables for every adviser and investor

It's a remarkable statistic. In any year since 1875, if you had invested in the Australian stock index, turned away and come back eight years later, your average return would be 120% with no negative periods.

The looming excess of housing and why prices will fall

Never stand between Australian households and an uncapped government programme with $3 billion in ‘free money’ to build or renovate their homes. But excess supply is coming with an absence of net migration.

Five stocks that have worked well in our portfolios

Picking macro trends is difficult. What may seem logical and compelling one minute may completely change a few months later. There are better rewards from focussing on identifying the best companies at good prices.

Let's make this clear again ... franking credits are fair

Critics of franking credits are missing the main point. The taxable income of shareholders/taxpayers must also include the company tax previously paid to the ATO before the dividend was distributed. It is fair.

Welcome to Firstlinks Edition 424 with weekend update

Wet streets cause rain. The Gell-Mann Amnesia Effect is a name created by writer Michael Crichton after he realised that everything he read or heard in the media was wrong when he had direct personal knowledge or expertise on the subject. He surmised that everything else is probably wrong as well, and financial markets are no exception.

  • 9 September 2021

Latest Updates

Investment strategies

Joe Hockey on the big investment influences on Australia

Former Treasurer Joe Hockey became Australia's Ambassador to the US and he now runs an office in Washington, giving him a unique perspective on geopolitical issues. They have never been so important for investors.

Investment strategies

The tipping point for investing in decarbonisation

Throughout time, transformative technology has changed the course of human history, but it is easy to be lulled into believing new technology will also transform investment returns. Where's the tipping point?

Exchange traded products

The options to gain equity exposure with less risk

Equity investing pays off over long terms but comes with risks in the short term that many people cannot tolerate, especially retirees preserving capital. There are ways to invest in stocks with little downside.

Exchange traded products

8 ways LIC bonus options can benefit investors

Bonus options issued by Listed Investment Companies (LICs) deliver many advantages but there is a potential dilutionary impact if options are exercised well below the share price. This must be factored in.

Retirement

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

Investment strategies

Three demographic themes shaping investments for the future

Focussing on companies that will benefit from slow moving, long duration and highly predictable demographic trends can help investors predict future opportunities. Three main themes stand out.

Fixed interest

It's not high return/risk equities versus low return/risk bonds

High-yield bonds carry more risk than investment grade but they offer higher income returns. An allocation to high-yield bonds in a portfolio - alongside equities and other bonds – is worth considering.

Sponsors

Alliances

© 2021 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. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). 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.

Website Development by Master Publisher.